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HMRC internal manual

Banking Manual

Bank loss restriction: calculation of carried-forward reliefs available: overview

Under the bank loss restriction rules the total amount of relevant carried-forward losses a banking company may use in a period is limited to 25% of its relevant profits (the limit was 50% from 1 April 2015 to 31 March 2016)

The banking company must perform an initial calculation of the amount of relevant profits before carrying out its calculation of total and taxable profits under the normal rules at CTA10/S4.  Up until 1 April 2017, relevant profits were calculated in accordance with the calculation at under CTA10/S269CD (see BKM304300 to BKM304400 for the steps required to determine relevant profits under s269CD). From 1 April 2017, relevant profits are calculated in accordance with the calculation at CTA10/S269ZF, in line with the general loss restriction (see BKM305100 to BKM305600).

When performing the calculation of relevant profits the company should use the same amounts for profits, reliefs, deductions, etc. as it intends to use in its actual tax calculation.  Where relevant it should also use the same assumptions for allocations of relief (see BKM304500). There may be exceptions to this where the company makes a claim to carry-back non-trading deficits under CTA09/S459(1)(b) (see BKM306350).

The amount of certain reliefs the company can claim as a result of the bank loss restriction rules will potentially be greater than it would otherwise be able to claim.  This is a consequence of the way the calculation of relevant profits works (see BKM304800).

The calculation of relevant profits is used to define the available amount of, respectively, pre-2015 carried-forward trading losses, pre-2015 carried-forward non-trading deficits, and pre-2015 carried forward management expenses (see BKM304400 for pre-1 April 2017 rules and BKM305600 for post-1 April 2017 rules).

The company will then perform its calculation of taxable total profits under CTA10/S4 using the restricted amounts of the relevant carried-forward losses in their normal order (BKM303250).  The amounts of profits remaining after the relevant losses are given will be sufficient to allow the claims the company factored into its calculation of relevant profits.

If a company subsequently made any changes to its claims it will usually need to re-calculate its relevant profits, and therefore the amount of available relevant carried-forward losses.  Claims to carry back relief from future periods are an exception to this (see BKM306300).