Corporation Tax Act 2010 section 428

Relief for expense otherwise giving rise to carried forward loss

Section 428 deals with how a loss derived from a deemed expense (arising when a company in a leasing partnership undergoes a qualifying change of ownership) can be converted into an expense of a later accounting period rather than simply being carried forward as a trading loss.

• When a qualifying change of ownership occurs and the company is treated as incurring a business expense under section 425 on the following day, a new accounting period ("period 1") begins.
• If the company makes a loss in period 1 or a later period, and that loss (or part of it) derives from the section 425 expense, the derived portion is not simply carried forward as a trading loss but is instead converted into a deductible expense of the next accounting period.
• The converted expense is uplifted using the formula DL + ((DL × D × R) / 365), where DL is the derived loss, D is the number of days in the loss-making period, and R is the official interest rate — this indexation preserves the value of the relief over time.
• This rolling conversion into an expense of the next period can continue for up to five years after the change of ownership, provided there is no further qualifying change of ownership triggering a new accounting period under sections 383 or 425.