BKM303200 - Bank loss restriction: carried-forward reliefs to which restriction applies: relevant carried forward losses – amount available - pre-1 April 2017

CTA10/S269CA(2), S269CB(2), & S269CC(7)

The three types of relevant carried-forward losses included in the restriction are only available against a proportion of the banking company’s profits for the period.

For profits arising prior to 1 April 2017, steps 5 to 7 of the calculation at CTA10/s269CD (see BKM304400) are used to determine relevant trading profits, relevant non-trading profits and relevant profits.

For profits arising from 1 April 2017, the calculation at CTA10/s269ZF is used to determine relevant trading profits, relevant non-trading profits and relevant profits (see BKM305100 – BKM305600). This brings the bank loss restriction into alignment with the general loss restriction at CTA10/PART7ZA.

The proportion of relevant carried-forward losses available to set off against relevant profits is set out below.

Pre-2015 carried-forward trading losses

From 1 April 2015 to 31 March 2016 the amount of pre-2015 carried-forward trading losses available will be 50 percent of the relevant trading profits as given by step 5 of CTA10/s269CD.

From 1 April 2016 to 31 March 2017 the amount of pre-2015 carried-forward trading losses available will be 25 percent of the relevant trading profits as given by step 5 of CTA10/s269CD.

From 1 April 2017 the amount of pre-2015 carried-forward trading losses available will be 25 percent of the relevant trading profits as given by CTA10/s269ZF(1).

Pre-2015 carried-forward non-trading deficits

From 1 April 2015 to 31 March 2016 the amount of pre-2015 carried-forward non-trading deficits available will be 50 percent of the relevant non-trading profits as given by step 6 of CTA10/s269CD.

From 1 April 2016 to 31 March 2017 the amount of pre-2015 carried-forward non-trading deficits available will be 25 percent of the relevant non-trading profits as given by step 5 of CTA10/s269CD.

From 1 April 2017 the amount of pre-2015 carried-forward trading losses available will be 25 percent of the relevant trading profits as given by CTA10/s269ZF(1).

Pre-2015 carried-forward management expenses

From 1 April 2015 to 31 March 2016 the amount of pre-2015 carried-forward management expenses available will be 50 percent of the relevant profits as given by step 7 of CTA10/s269CD, less the sum of any deductions made in respect of

  • Pre-2015 carried-forward trading losses, and
  • Pre-2015 carried-forward non-trading loan relationship deficits.

From 1 April 2016 to 31 March 2017 the amount of pre-2015 carried-forward management expenses available will be 25 percent of the relevant profits as given by step 7 of CTA10/s269CD, less the sum of any deductions made in respect of

  • Pre-2015 carried-forward trading losses, and
  • Pre-2015 carried-forward non-trading loan relationship deficits.

From 1 April 2017, the amount of pre-2015 carried-forward management expenses available will be 25 percent of the relevant profits as given by CTA10/s269ZD(5), less the sum of any deductions made in respect of

  • Trading losses carried forward under CTA10/s45, against profits of the same trade only,
  • Trading losses carried forward under CTA10/s45B, against profits of the same trade only, and
  • Non-trading loan relationship deficits carried forward under CTA09/s457, against non-trading profits only.

From 1 April 2017, when the company subtracts the above deductions from 25% of its relevant profits, the result may be a negative number. That is because from this date, the company subtracts deductions for losses or deficits carried forward under CTA10/s45, CTA10/s45B and CTA09/s457 regardless of when the losses or deficits arose.

Losses and deficits arising from 1 April 2015 are subject to the general loss restriction (from 1 April 2017) (CTA10/PART7ZA) but not to the bank loss restriction, so the company may be able to make deductions for these amounts in excess of 25% of its relevant profits.

If the company reaches a negative number when it subtracts the above deductions from 25% of its relevant profits, the amount of pre-2015 carried-forward management expenses available will be nil.

Order of relief

Relief for pre-2015 carried-forward trading losses and pre-2015 carried-forward non-trading deficits will be given first as they are deducted in calculating total profits, whereas management expenses are a relief against total profits. However, the company can make a claim under CTA09/s458 to prevent relief for all or part of a deficit carried forward under s457 (CFM32040).

From 1 April 2017, as part of the reform of corporation tax loss relief, there has been a general extension of companies’ ability to use claims to choose which carried-forward losses they utilise in a particular accounting period. Guidance on the reform has been published in draft.