BKM306500 - Bank loss restriction: carried forward reliefs outside the restriction: reliefs for new entrant banks

CTA10/S269CF

Reliefs arising before a company begins to undertake relevant regulated activity are not subject to the bank loss restriction – see BKM306400. Reliefs arising in the first five years of a new entrant’s trading are not subject to the bank loss restriction. In practice this exception only applies to the losses of a genuine new entrant and the start-up period for a company that appears to be a new entrant may be shorter than five years (link to the first five years below)

See BKM306550 for guidance on the order of use of losses arising during a company’s start-up period and the apportionment of carried-forward losses where the company’s start-up period ends during the company’s accounting period.

Relevant regulated activity

Relevant regulated activity is defined in CTA10/S269BB, and the guidance is in BKM302450. A company does not need to be regulated (within the UK or overseas) to be taking part in relevant regulated activity. This means that a company undertaking relevant regulated activity in a country without a regulator is still undertaking relevant regulated activity and a company that was undertaking relevant regulated activity before regulation commenced was still undertaking relevant regulated activity.

Group

The definition of group for the purpose of the bank loss restriction takes its meaning from accounting standards (CTA10/s269BD) and also includes a joint venture company that is a banking company (CTA10/s269CM) - see BKM302900. This definition is extended for the purpose of determining a company’s start up period so any reference to being or becoming a member of a group includes a reference to being or becoming a member of a partnership (CTA10/s269CG(9))

Note that the general loss restriction at CTA10/PART7ZA, which has application from 1 April 2017, uses a different definition of a group (CTA10/S269ZZB). The definition at s269ZZB determines which companies must share a deductions allowance. This can affect the calculation of relevant profits for the bank loss restriction as well as the general loss restriction (see BKM305600).

However, this does not affect the legislation defining a banking company for the purpose of the bank loss restriction, which continues to use the definition of a group as set out above.

The first five years

To help explain these rules we refer to the company newly undertaking relevant regulated activity as Company A.

Company A’s start-up period commences on the first day it begins to undertake relevant regulated activity and runs for five years from that day. In practice this exception only applies to the losses of a genuine new entrant and the start-up period for a company that appears to be a new entrant may be shorter than five years:

  • Where Company A is in a group, or changes groups during its start-up period, Company A’s start-up period begins at the earliest point any other company in the group first undertook relevant regulated activity. If that is more than five years before Company A began relevant regulated activity, Company A doesn’t have a start-up period and doesn’t benefit from the new entrant exception.

  • Where Company A joins a group during its start-up period and

    • there are other companies within the new group which are already undertaking relevant regulated activity, and
    • Company A’s relevant regulated activities do not form a significant proportion of the overall relevant regulated activity of the group immediately after the day it joins the group

Company A’s start up period will end either:

  • On the day before it joins the group, or if later,

  • Five years from the date when any other company in the group it joined first undertook relevant regulated activity

  • Where Company A joins a group during its start-up period and
    • there are other companies within the new group which are already undertaking relevant regulated activity and
    • Company A’s relevant regulated activities form a significant proportion of the overall relevant regulated activity of the group

Company A retains its original start-up period end date.

  • Where during Company A’s start-up period another company that undertakes relevant regulated activity joins a group of which Company A is a member and
    • the joining company first began to undertake relevant regulated activity before the beginning of Company A’s start up period and
    • the joining company’s relevant regulated activities form a significant proportion of the overall relevant regulated activity of the group immediately after the day it joins.

Company A’s start up period will end either:

  • On the day before it joins the group or if later,
  • Five years from the date when the joining company first undertook relevant regulated activity

The start-up period is never lengthened

A company will never lengthen its start-up period by changing groups during its start-up period. If a company changes groups, or leaves all groups, within the first five years following commencement of relevant regulated activity it will retain any reduced start-up period due to other companies in its previous group.