BKM301300 - Bank loss restriction: Introduction: overview of legislation – categorisation of banks’ carried-forward losses

Banking companies’ carried-forward losses are subject to a number of different measures with different commencement dates.

The banking surcharge (BKM400000+) was introduced with an operative date of 1 January 2016, and losses arising before that date cannot be set against surcharge profits (BKM403500+). The bank loss restriction (BKM300000+) applies to a banking company’s relevant carried-forward losses (BKM303000+). These losses arise before 1 April 2015, so they are all pre-2016 losses for surcharge purposes.

For periods from 1 April 2017, all companies, including banking companies, are subject to the general restriction on relief for carried-forward losses (CTM05000+, BKM305000+). This applies to most carried-forward losses (CTM05020), regardless of when they arose. This means that, for banking companies, some carried-forward losses of types subject to the general loss restriction will be pre-1 January 2016 losses, added back for the purposes of the surcharge, whereas others will be post 1 January 2016 losses.

In addition, carried-forward trading and non-trading losses incurred from 1 April 2017 can generally be set against total profits of the company (CTM04840), and can potentially be surrendered as group relief for carried-forward losses (CTM82000), although in both cases companies remain subject to the general restriction on relief.

This means that, for example, a banking company’s trading losses carried-forward may include the following:

Trading losses incurred before 1 April 2015

• subject to the bank loss restriction,
• added back for the purposes of the surcharge,
• subject to the general loss restriction, and
• carried-forward for relief against profits of the same trade only.

Trading losses incurred between 1 April 2015 and 31 December 2015

• not subject to the bank loss restriction,
• added back for the purposes of the surcharge,
• subject to the general loss restriction, and
• carried-forward for relief against profits of the same trade only.

Trading losses incurred between 1 January 2016 and 31 March 2017

• not subject to the bank loss restriction,
• not added back for the purposes of the surcharge,
• subject to the general loss restriction, and
• carried-forward for relief against profits of the same trade only.

Trading losses incurred from 1 April 2017

• not subject to the bank loss restriction,
• not added back for the purposes of the surcharge,
• subject to the general loss restriction, and
• (in general) carried-forward for relief against total profits of the company, and potentially available for surrender as group relief for carried-forward losses.