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ID 1: Treatment of tax losses by consolidated groups
or “How consolidated groups share and use tax losses”
You could also call this:

“How a company's pre-group losses are used within a consolidated group”

When a company that’s part of a consolidated group has losses from before it joined the group, here’s what happens:

First, you must use these losses to reduce the consolidated group’s income for the tax year. You do this as much as you can with the losses you have.

If you still have some losses left after that, you can choose to do one or more of these things:

  1. Use the remaining losses to reduce your own company’s income for the tax year.
  2. Let another consolidated group use the remaining losses to reduce their income for the tax year.
  3. Let another company use the remaining losses under the rules in section IC 5.

If you still have losses left after doing all of that, you can carry them forward to use in the next tax year.

This rule is more important than some other rules about using and grouping tax losses. However, the rules in sections ID 3 to ID 5 are even more important than this one.

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Next up: ID 3: Pre-consolidation losses: use by group companies

or “How group companies can use losses from before a company joined the group”
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Part I Treatment of tax losses
Use of tax losses by consolidated groups

ID 2Pre-consolidation losses: general treatment

  1. This section applies in a tax year when a company that meets the requirements of section IA 5(2) and (3) or IB 3(2) (which relate to the carrying forward of tax losses for companies) and is part of a consolidated group has a pre-consolidation loss balance carried forward to the tax year.

  2. The first use of the loss balance must be to make the amount of the loss balance available to the consolidated group to subtract from its net income, so far as it extends, for the tax year.

  3. If, after subsection (2) is applied, some of the loss balance remains, the company may choose to do 1 or more of the following:

  4. subtract the remaining amount from its net income for the tax year:
    1. make the remaining amount available to another consolidated group to subtract from its net income for the tax year:
      1. make the remaining amount available under section IC 5 (Company B using company A’s tax loss).

        1. If, after subsections (2) and (3) are applied, a loss balance remains, the remaining amount is carried forward to the next tax year.

        2. This section overrides sections IA 3, IA 4, and IC 5 (which relate to the general use and grouping of tax losses). Sections ID 3 to ID 5 override this section.

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        Notes
        • Section ID 2(1): amended (with effect on 1 April 2020), on , by section 105(1) (and see section 105(2) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).