Corporation Tax Act 2010 section 676AE

Affected profits

Section 676AE defines what counts as "affected profits" for the purpose of restricting the use of losses following a change in company ownership combined with a major change in the nature or conduct of a business.

• Profits of an accounting period ending after the change in ownership are "affected profits" if they arise within five years of the end of the accounting period in which the change in ownership occurs and can be fairly and reasonably attributed to the activities or income sources that gave rise to the major change.
• Where an accounting period straddles the fifth anniversary date, it is split into two deemed accounting periods — one ending on the anniversary date and one covering the remainder — and profits or losses are apportioned between the two periods.
• The default method of apportionment is on a time basis according to the respective lengths of the two deemed periods, but if that would produce an unjust or unreasonable result, a just and reasonable alternative method must be used instead.
• Where the major change relates to the trade or business that generated the losses in question, Chapters 2 or 3 of Part 14 take priority over Chapter 2A.