Regimes are not separate

Offsetting corporation tax losses against income tax profits

English Holdings (BVI) Ltd was incorporated in the British Virgin Islands. It traded in UK land through a permanent establishment in the UK so any profits from this activity were subject to corporation tax. It also received rents from commercial properties in the UK an activity managed from the main office – not the permanent establishment – so any profits from this business were chargeable to income tax.

Under the corporation tax rules a trading loss can be set against total income of that or the previous year. Under the income tax rules a trading loss can be set against general income of that or the previous year.

In the year ended 31 March 2011 the UK trade made a loss of £2m part of which English Holdings set off against its UK rental profits of £1m....