BKM301100 - Bank loss restriction: introduction: overview of legislation
CTA10/Part 7A
A restriction on banking companies (BKM302100) obtaining certain deductions was introduced by FA15 at CTA10/PART7A/CH3. This is referred to as the bank loss restriction.
The rules restrict the amount of certain carried forward losses that can be used as relief by a company in a particular accounting period, and apply in calculating a banking company’s taxable total profits for accounting periods beginning on or after 1 April 2015. See BKM309100 for detail concerning accounting periods that straddle that date.
The carried-forward deductions that are restricted are the following where they arose in the banking company before 1 April 2015:
- Trading losses,
- Non-trading loan relationship deficits, and
- Management expenses.
These are collectively referred to as relevant carried-forward losses. BKM303100 has more details, including what is meant by arising before 1 April 2015.
From 1 April 2017 onwards, all companies are subject to the general restriction on carried-forward losses (introduced in F(No 2)A17, at CTA10/PART7ZA) . Banking companies therefore need to take account of the general restriction on relief for carried forward losses in addition to the restriction of their pre-1 April 2015 carried-forward reliefs.
The way in which the bank loss restriction is calculated changed with effect from 1 April 2017, to align with the calculation of the general restriction at Part 7ZA. BKM305000 has more details. Guidance on the general loss restriction has been published in the Company Taxation Manual at CTM05000+.
For those banking companies subject to the banking surcharge, losses arising before 1 January 2016 cannot be used to reduce the banking companies’ surcharge profits (see BKM403500).