Corporation Tax: bank loss relief restriction
Published 16 March 2016
© Crown copyright 2016
This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open-government-licence/version/3 or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: psi@nationalarchives.gov.uk.
Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned.
This publication is available at https://www.gov.uk/government/publications/corporation-tax-update-to-bank-loss-relief-restriction/corporation-tax-bank-loss-relief-restriction
Who is likely to be affected
Banking companies and building societies within the charge to UK Corporation Tax (CT).
General description of the measure
The measure will reduce the amount of a banking company’s annual taxable profit that can be offset by pre-April 2015 carried-forward losses from 50% to 25%.
The measure will take effect from 1 April 2016
Policy objective
At Autumn Statement 2014 it was announced that the amount of taxable profit that could be offset by banks’ historic carried-forward losses would be restricted to 50% from April 2015.
The measure will maintain the exceptional treatment of banks’ carried-forward losses in the context of wider reforms being announced to the loss-relief rules at Budget.
Background to the measure
The measure was announced at Budget 2016.
Detailed proposal
Operative date
This measure will have effect for accounting periods beginning on or after 1 April 2016.
Any profits of a banking company with an accounting period straddling 1 April 2016 will be allocated into notional periods falling before and after that date, on either a time apportioned or just and reasonable basis.
Current law
Current law is included in chapter 3 of part 7A of Corporation Tax Act 2010 having been introduced by schedule 2 of Finance Act 2015. These rules restrict the proportion of a banking company’s profits that can be covered by relevant reliefs to 50%.
Relevant reliefs are carried forward trading losses, non trading loan relationship deficits and management expenses that accrued before 1 April 2015.
Proposed revisions
Legislation will be introduced in Finance Bill 2016 to restrict the proportion of a banking company’s profits that can be covered by relevant reliefs to 25%.
Summary of impacts
Exchequer impact (£m)
| 2016 to 2017 | 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 |
|---|---|---|---|---|
| +330 | +520 | +465 | +375 | +315 |
These figures are set out in Table 2.1 of Budget 2016 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Budget 2016.
Economic impact
This measure will have an impact on firms’ cashflow in that it will impact on the timing of banks’ taxable profit and loss over time, but is not expected to have any significant wider macroeconomic impacts.
The costing also accounts for a behavioural response of banking groups to the restriction whereby those affected may find alternative routes of tax planning and avoidance, taking into account the targeted anti-avoidance rule within the legislation.
Impact on individuals, households and families
This measure concerns incorporated businesses. It has no direct impact on individuals or households and is not expected to impact on family formation, stability or breakdown.
Equalities impacts
This measure is not expected to impact on any of the identified diversity groupings.
Impact on business including civil society organisations
The measure impacts on banks and building societies within the charge to UK corporation tax, which have carried-forward losses relating to financial years preceding 2015 to 2016. These banks are expected to incur a negligible one-off cost to update their systems but the amount of carried forward loss they are able to set against their profits will decrease and they will pay more CT. There are not expected to be any additional ongoing costs.
There is no impact on civil society organisations.
Operational impact (£m) (HM Revenue and Customs (HMRC) or other)
This measure is not expected to have any significant operational impacts.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be subject to ongoing monitoring through receipts, information collected in tax returns and disclosure of new anti-avoidance schemes to circumvent the measure.
Further advice
If you have any questions about this change, please contact Ursula Crosbie on Telephone: 03000 589 086 or email: ursula.crosbie@hmrc.gsi.gov.uk.
Anthony Fawcett on Telephone: 03000 585 911 or email: anthony.c.fawcett@hmrc.gsi.gov.uk