BKM305700 - Bank loss restriction: Calculation of carried-forward reliefs available: calculation of relevant profit APs from 1/4/17 – summary of calculation

This summarises the calculation of carried-forward reliefs available in accordance with both the bank loss restriction and the general loss restriction. See BKM310200 for a worked example.

  1. Calculate modified total profits (CTA10/S269ZF(3) step 1)

To calculate the modified total profits, the amount of total profits for the period is calculated in accordance with the modifications set out at s269ZF(4). Broadly, this means finding the total profits excluding any losses that are subject to the general loss restriction. (BKM305200)

  1. Divide modified total profits into trading profits and non-trading profits (CTA10/S269ZF(3) step 3)

The modified total profits found at point 1 are divided into trading profits and non-trading profits. (BKM305300)

  1. Deduct in-year reliefs to find the qualifying trading profits and qualifying non-trading profits (CTA10/S269ZF/(3) steps 2, 4 and 5)

Once the company has divided its modified total profits into trading and non-trading profits, it deducts in-year reliefs in order to calculate qualifying trading and non-trading profits. The company may choose how its in-year reliefs are allocated between trading and non-trading profits. (BKM305400)

  1. Subtract any deductions allowance and identify relevant profits (CTA10/S269ZF(1) to (2), CTA10/S269ZD(5), S269ZF(1) and (2))

The company can allocate its deductions allowance between trading and non-trading profits as it chooses. This gives the trading profits deductions allowance and the non-trading profits deductions allowance (CTA10/S269ZB(7) and S269ZC(5)). (BKM305500)

The company’s relevant trading profits are its qualifying trading profits (found at point 3) less any trading profits deductions allowance.

The company’s relevant non-trading profits are its qualifying non-trading profits (found at point 3) less any non-trading profits deductions allowance.

The company’s relevant profits are its relevant trading profits plus its relevant non-trading profits.

(BKM305600)

  1. a) Calculate the relevant maximum – trading profits

i) In accordance with the bank loss restriction, the company can use pre-1 April 2015 carried-forward trading losses against 25 percent of the amount of its relevant trading profits.

ii) In addition, the general loss restriction places an overall limit on the company’s use of any carried-forward trading losses of types that can only be set against trading profits (broadly, pre-1 April 2017 trading losses). This includes pre-1 April 2015 carried-forward trading losses that are subject to the bank loss restriction.

The overall limit set by the general loss restriction is called the relevant maximum. The relevant maximum for trading profits is the sum of

  • 50% of the relevant trading profits, and
  • The trading profits deductions allowance.

  1. b) Calculate the relevant maximum – non-trading profits

i) In accordance with the bank loss restriction, the company can use pre-1 April 2015 carried-forward non-trading loan relationship deficits against 25 percent of the amount of its relevant non-trading profits.

ii) In addition, the general loss restriction places an overall limit on the company’s use of any carried-forward non-trading loan relationship deficits (NTLRDs) of types that can only be set against non-trading profits (broadly, pre-1 April 2017 NTLRDs). This includes pre-1 April 2015 carried-forward NTLRDs that are subject to the bank loss restriction.

The overall limit set by the general loss restriction is called the relevant maximum. The relevant maximum for non-trading profits is the sum of

  • 50% of the relevant non-trading profits, and
  • The non-trading profits deductions allowance.

  1. c) Calculate the relevant maximum – total profits

i) In accordance with the bank loss restriction, the company calculates the amount of pre-1 April 2015 carried-forward management expenses it can use by finding 25 percent of the relevant profits and subtracting 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.

ii) In addition, the general loss restriction places an overall limit on the company’s use of carried-forward losses against its total profits of the period. This is an overriding upper limit for the use of all carried-forward losses of types that are subject to the general loss restriction. These losses include pre-1 April 2015 carried-forward losses that are subject to the bank loss restriction and carried-forward trading losses and NTLRDs of types that are subject to the relevant maxima for trading and non-trading profits.

The overall limit set by the general loss restriction is called the relevant maximum. The relevant maximum for total profits is the sum of

  • 50% of the relevant profits, and
  • The total deductions allowance.

The company may have already deducted losses at points 5. a) and 5. b) above. If so, it should deduct these from its relevant maximum for total profits to determine what further capacity it has to relieve carried-forward losses against total profits.

  1. Calculate profits chargeable to Corporation Tax

The company calculates its profits chargeable to Corporation Tax in accordance with s4, limiting the amounts of carried-forward losses used in accordance with the bank loss restriction and general loss restriction.

If the company makes a loss in the following period that is available for carry back, it can deduct this carried-back loss from any profits remaining after the restrictions have been applied without needing to recalculate the amounts of relevant profits.