What does section 676AI of the Corporation Tax Act 2010 do?

Section 676AI restricts relief for non-trading losses on intangible fixed assets that arose on or after 1 April 2017 but before a change in company ownership. It prevents new owners from exploiting pre-existing losses on items such as patents, copyrights, trademarks, and goodwill to shelter profits generated by changed or new business activities.

Which losses are caught by the restriction in section 676AI?

The restriction applies to relevant non-trading losses on intangible fixed assets arising in accounting periods beginning both before the change in ownership and on or after 1 April 2017. Losses carried forward from such periods are also caught. Losses from accounting periods beginning before 1 April 2017 are not subject to this restriction.

How does section 676AI restrict the carry forward of non-trading losses on intangible fixed assets?

A relevant non-trading loss on intangible fixed assets cannot be carried forward and set against affected profits of any accounting period ending after the change in ownership. Affected profits are those arising from a major change in the nature or conduct of the company's trade or from a business the company became involved in after the ownership change.

How is relief limited where an accounting period straddles the change in ownership date?

Where an accounting period straddles the date of the change in ownership, it is split into notional periods. Relief for relevant non-trading losses on intangible fixed assets can only be set against the total profits of each notional accounting period considered separately, preventing losses from being used more broadly across the combined actual accounting period.

Corporation Tax Act 2010 section 676AI

Restriction on relief for post-1 April 2017 non-trading loss on intangible fixed assets

Section 676AI restricts the ability of a company to use non-trading losses on intangible fixed assets that arose before a change in ownership to reduce taxable profits after that change in ownership.

Non-trading losses on intangible fixed assets from accounting periods beginning before the change in ownership but on or after 1 April 2017 are classed as "relevant" losses subject to restriction.
This includes both the original losses and any amounts carried forward from those periods.
Where relief is available, it can only be set against the total profits of each notional accounting period considered individually, not the actual accounting period as a whole.
These relevant losses cannot be carried forward and deducted from "affected profits" of any accounting period ending after the change in ownership.

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