BKM306350 - Bank loss restriction: carried forward reliefs outside the restriction: reliefs carried-back from later periods - non-trading deficits

Unlike carried-back trading losses or excess capital allowances, non-trading deficits on loan relationships can only be set against non-trading profits under CTA09/Part 5 (CFM32070, CTA09/S463, S463F)

For periods prior to 1 April 2017, the calculations at Steps 4 to 6 of CTA10/S269CD make assumptions about how a company’s relief against total profits is given in terms of trading and non-trading profits (by a proportionate split, (BKM304300).

For periods from 1 April 2017, CTA10/S269ZF(3) step 4 allows the company to choose how it allocates in-year relief against trading and non-trading profits.

in both cases, this is only for the purposes of calculating the amounts of relevant trading profits and relevant non-trading profits under the restriction, and does not prejudice the manner in which the company may choose to set the relief when looking at the amount of CTA09/Part 5 profits available for relief under CTA09/S459(1)(b) or S463B(1)(b).

Example

The banking company has £100m of pre-2015 carried-forward non-trading deficits.

In the year ended 31 March 2016 the banking company has £20m of trading profits and £80m of non-trading profits (arising under CTA09/Part 5). For the purposes of step 3 of CTA10/S269CD the company therefore has a trading proportion of (20/100) 20% and a non-trading proportion of (80/100) 80%.

The company claims group relief of £50m. The proportionate split in steps 4 to 6 of S269CD means that the £50m is set (20%) £10m against trading profits and (80%) £40m against non-trading.

This means that the company has:

  • relevant trading profits of (£20m less £10m) £10m
  • relevant non-trading profits of (£80m less £40m) £40m.

The relevant non-trading profits mean that the company has £20m of pre-2015 carried-forward non-trading deficits available under CTA10/S269CB.

According to the calculation in S269CD the company has:

  • trading profits of £20m less group relief of £10m = £10m
  • non-trading profits of £80m less carried forward deficits of £20m = £60m less group relief of £40m = £20m

This gives taxable total profits of £30m.

This split, however, is for the purposes of the s269CD calculation only, and the company’s actual tax calculation under CTA10/s4 will be:

  • trading profits of £20m
  • plus non-trading profits of £80m less carried forward deficits of £20m = £60m

  • to give total profits of £80m

  • group relief of £60m is deducted from the £80m total profits to give taxable total profits of £30m.

Total profits is still undifferentiated, so in the actual tax calculation under CTA10/s4 the company has made no ‘choice’ in how the group relief has been given.

In the year ended 31 March 2017 the company has £nil trading profits, and makes a non-trading deficit of £50m, which it chooses to carry back through a claim under CTA09/S459(1)(b) against profits under CTA09/Part 5.

Under the normal rules, the company would choose to assume that the group relief was set £20m against the trading profits and £30m against the non-trading profits, leaving £30m of non-trading profits available for relief by the carry-back. Even though the calculation at S269CD has resulted in non-trading profits of £20m, in the actual tax calculation the company may still assume that £30m of non-trading profits are available for relief.

Because the carry-back does not affect the calculation of relevant profits (CTA10/S269CD(2)(d)) the banking company can set the carried-back deficit against the £30m of non-trading profits and reduce its profits for the year to 31 March 2016 to £nil.

For periods from 1 April 2017, the same principle applies for the calculation of relevant profits at CTA10/S269ZF and S269ZD(5).