CFM95720 – Corporate Finance Manual – HMRC Internal Manual

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TIOPA10/S406, S407

Adjusted corporation tax revenue is a company’s taxable profit or loss for an accounting period adjusted for certain items. These amounts are aggregated to derive a company’s fiscal EBITDA for a group’s accounting period.

It is based on the sum of two amounts:

  • The amounts of condition A are taken into account when determining the total taxable profits for the period; and
  • The amounts in Condition B are amounts that would have been taken into account in determining the taxable profits for the period had there been sufficient profits.

Condition B is included to ensure that all profits and losses are included in the calculation of income adjusted for corporation tax for the accounting period.

Note that the adjusted corporation tax result may be a negative amount, representing a loss for the period (taking into account the adjustments explained below).

Adjustments

When calculating the company’s adjusted corporate tax earnings for an accounting period, certain adjustments are made. These work to exclude amounts that would otherwise be included as either Condition A or Condition B amounts.

Excluded amounts are set out in subsection s407(1). They have three types of adjustment.

First, the amounts are excluded to calculate taxable profit (or loss) before interest, depreciation and amortization. These consist of:

Second, amounts are excluded where they consist of losses occurring in another group company or in another accounting period. However, there are two exceptions to this:

  • The exclusion of losses realized outside the relevant accounting periods does not apply to capital losses under TCGA1992. Capital losses are, however, excluded from the amounts in Condition B. This means that capital losses are only included to the extent that they are deducted from taxable gains.
  • The group/consortium relief exclusion (including losses carried over and assigned under CTA10/S188CK) does not extend to any group/consortium relief claim attributable to losses that are not losses. of the group of which this applicant the company is a member. This will be the case when the transferring company is not a member of the CIR group, or was not at the time of its loss. This is also likely the case when consortium relief is claimed. For more details and an example of how casualty relief and CIR interact in such a scenario, see CFM95723.

Finally, the effect of certain eligible tax breaks is also excluded so that the CIR does not diminish the effect of these schemes.

Specific rules also address financial leasing transactions and the effect of double tax relief.

Ignored periods

It is necessary to adjust the amounts included in Adjusted Corporation Tax Revenue for any disregarded periods that occur when:

  • A relevant accounting period of a group company is partly outside the group accounting period, or
  • The company joins or leaves the group halfway through the group’s financial year.
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