Corporation tax relief for property losses and P11D car benefit employee contributions are two areas of the UK tax system which concern many across the country. Here, we have simplified them for you.
Corporation tax relief for property losses
Major changes to the corporation tax relief loss rules were affected by Her Majesty’s Revenue and Customs in Finance (No. 2) Act 2017, to be applicable from April 1st 2017. The options for relieving property losses depend on whether they arose before or after this date. If the accounting period runs across this date, it would need to be split into two periods, and the profits and losses time-apportioned accordingly.
Losses arising before, and those which have to be relieved against profits before this date, can be automatically set as far as possible against the company’s total profits for the period. If there are still unrelieved losses and if the company is still in business during the later accounting period, losses can be carried over to the next period and set off against the profits of that period without any provisions for group relieving.
If a loss before this date is relieved against profits arising after that date, provided the company is still in the UK property business, the set-off has to be claimed within two years of the accounting period and is no longer automatic.
This applies to losses arising after April 1st 2017 too. There is no need to relieve the losses in full or against the company’s profits, but can be group relieved. Earlier, it could be group relieved only if there was an excess loss over the company’s own profits.
Losses carried forward to later accounting periods can be claimed fully, partially or not at all without having to be automatically set off against the company’s own total profits. The newly introduced “deductions allowance” (up to £5 million and 50% of the excess profits for the accounting period over that allowance) restricts the maximum amount of carried forward losses. Single companies will receive a £5 million allowance over a year while group companies can decide on how they allocate their allowances.
If a company suffers losses on an overseas property business, it can only be carried forward to be set against future profits from the same business regardless of when the loss arose. There is no provision for group relief and this has not been altered by the Finance Act.
P11D car benefit employee contributions
If an employer calculates his/her employee’s car benefit in kind for their P11D, deductions can be provided for the employee’s contribution according to the UK tax system. There are two types of capital contributions:
A capital contribution is made when providing a car or extra “qualifying accessories” (value added to the list price) which can or cannot be removed. Such a contribution is usually made when the car is first provided and when the employee wants a ‘better’ car than what the employer is providing, but the total contribution doesn’t have to be made in up front.
An up to £5,000 deduction is available for capital contributions and can be made from the car’s list price. As long as the particular car or accessories are used, the deduction is available every tax year. If a new employee gets the use of the car, they cannot claim deductions for capital contributions paid by the former.
A contribution for private use – After calculating the initial value of the benefit in kind using the list price (deducting any capital contributions) and CO2 emissions, the benefit can be reduced by any contributions the employee has made towards their private use of the car. Certain conditions need to be met in this regard – The employee should pay a certain amount for the private use of the car, as specified in the agreement and agreed to before the employee starts using the car privately; benefits after 2017-18 are deductible if they are made to the employer before the end of the tax year on July 6. (For earlier years, deductions could be made within the same tax year.); if the private use contribution exceeds the value of the benefit, the benefit becomes zero, but still has to be reported in the P11D.