Introduction Overview Overview Section 37: Relief for trade losses against total profits
159.This section explains how a loss in a trade may be relieved against total profits of the same or earlier periods. It is based on sections 6(4), 393A(1), (2), (3), (10) and 834(2) of ICTA.
160.Subsection (3)(b) establishes that a loss in trade may be carried back to the twelve month period prior to the accounting period in which the loss arose. The exceptions to this rule, where the carry–back period is extended, are set out in sections 39 to 42. These exceptions affect companies either rarely or not at all.
161.Subsection (4) deals with the order of set-off of losses claimed under subsection(3). Such losses must first be set against total profits of the loss making period before, if the claim so requires, being carried back to earlier periods. Where it is possible to carry a loss back for more than one period (see sections 39 to 42) then the loss must be set against total profits of the most recent period before the balance of the loss can be carried back to the period preceding that period and so on.
162.Subsections (5) and (6) prohibit the carry back of losses from what used to be Case V trades but what are now referred to as trades “carried on wholly outside the United Kingdom”. The courts established that a Case V trade was one that was carried on wholly outside the United Kingdom.
163.Ogilvie v Kitton (Surveyor of Taxes) (1908), 5 TC 338,Court of Exchequer (Scotland) determined that where a trade is “carried on” depends not only on the location of the day-to-day transactions of the trade but also on where the management and control of the company takes place. In the case of a company where the directors are responsible for management and control and that management and control function is exercised in the United Kingdom it is very unlikely that the company has a trade “carried on wholly outside the United Kingdom”.
164.There is, however, one situation where a company managed and controlled in the United Kingdom may have a trade carried on wholly outside the United Kingdom. That is where the company is a partner in a partnership and the business of the partnership is managed and controlled abroad. By using the words “carried on” in the section the link with existing case law has been maintained.
165.Subsection (7) sets out the time limits for making a claim. The time limit may be extended by an officer of Revenue and Customs. See Change 5 in Annex 1.
166.Subsection (9) provides that relief is subject to restriction or modification in accordance with provisions of the Corporation Tax Acts. Examples of such restrictions or modifications are to be found in:
	the rest of the Chapter;
	Chapter 3 of this Part (relief for losses in cases involving limited partnerships and limited liability partnerships);
	Section 304(relief for losses in relation to oil activities);
	Section 944 (modified application of Chapter 2 of Part 4 in relation to transfers of trade without a change in ownership); and
	Chapter 3 of Part 22 (relief for losses if company is a member of a partnership and certain arrangements for transferring relief are in place).
167.Subsection (2D) of section 393A has not been rewritten. The subsection was a signpost to section 393B where certain provisions relating to losses arising in a ring fence trade applied. The structure of the rewritten section makes such a signpost unnecessary.
168.Subsections (7), (7A) and (8) of section 393A have not been rewritten. These subsections dealt with excess trade charges. It is no longer possible for trade charges to arise and these subsections were therefore redundant.
169.The definition of charges in section 338A of ICTA was limited to qualifying donations to charity. To be added to trade losses (section 393(9) of ICTA) the charges must have beenpayments made wholly and exclusively for the purposes of the trade. Section 338A(3) stipulated that no payment that was deductible in computing profits should be treated as a charge. If a payment was made wholly and exclusively for the purposes of the trade it would be allowable as a deduction in computing profits. Hence, it could not be a charge.