BKM309100 - Bank loss restriction: commencement rules: periods straddling 1 April 2015 or 1 April 2016

FA15/Schedule 2/paragraph 7

The restriction on use of relevant carried-forward losses applies for accounting periods beginning on or after 1 April 2015.

Where the rules apply to a company with an accounting period straddling 1 April 2015 that period will be treated as two separate accounting periods for the purposes of calculating the company’s taxable total profits. The restriction on relevant carried-forward losses will apply in the split period treated as commencing 1 April 2015.

The default is a split on a time basis unless that is unjust or unreasonable.

If a company makes a profit in the straddling period and has relevant carried-forward losses from previous periods then the losses will be used unrestricted in the period falling before 1 April 2015 and subject to the restriction in the period commencing 1 April 2015.

Any method can only apportion any profit for the whole accounting period into a profit in the two periods. It is not possible to apportion on a basis that turns a given profit for the whole period into a profit in one period and a loss in the other.

The split applies only so far as it is necessary for the purposes of the restriction.

Straddling period split on a basis other than time - FA15/Schedule 2/paragraph 7(4)(b)(ii)

When apportioning profits and losses of an accounting period straddling 1 April 2015 the company may choose to do so on a basis other than time, if a time basis would be unjust or unreasonable.

The provisions apportion a profit or loss to the two periods within the accounting period, so it is not possible to change a profit or loss overall in the accounting period into a loss in one period and profit in the other.

Applying the commencement rule following change to bank loss restriction - FA16/Section 57 (6)

The restriction on banking companies obtaining deductions for relevant carried-forward losses was amended from 50% to 25% of relevant profits from 1 April 2016.

Where the rules apply to a company with an accounting period straddling 1 April 2016 that period will be treated as two separate accounting periods for the purposes of calculating the company’s taxable total profits within these rules. The 25% restriction on relevant carried-forward losses will apply in the split period treated as commencing on 1 April 2016.

The default is a split on a time basis, unless that basis is unjust or unreasonable

When apportioning profits and losses of an accounting period straddling 1 April 2016 the company may choose to do so on a basis other than time, if a time basis would be unjust or unreasonable (FA16/S57(6)(b)(ii)).