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HMRC internal manual

Banking Manual

Bank loss restriction: calculation of carried-forward reliefs available - interaction with calculation of taxable total profits

CTA10/S269ZF, and S269CA, S269CB, S269CC & S269CD

Calculation of profits under CTA10/S4

Under the normal rules, disregarding the bank loss restriction (CTA10/PART7A/CH3) and the general loss restriction (CTA10/PART7ZA), a company calculates its total profits under CTA10/S4(3) and taxable total profits under S4(2). These rules require the company to take account of any carried-forward trading losses and non-trading deficits on loan relationships in calculating total profits.  Management expense incurred in the period of relief are the first relief given at step 2 when calculating total taxable profits.  Prior to 1 April 2017, management expenses carried forward from previous periods were also given in priority to other reliefs against total profits (CTA09/S1219(1A), CTA09/S1223(3E)), 

The relevant carried-forward losses under the bank loss restriction are therefore some of the first reliefs a company will deduct in its tax calculation.

Other major reliefs are given later in the calculation, including group relief given under CTA10/S137, which is the last relief of all (S137(4)(b)) apart from those reliefs carried back from later periods.

Reliefs given later in the calculation will only be available to the extent that the company has any profits remaining after earlier reliefs are given.  For example, if a company receives sufficient relief from carried-forward trading losses to extinguish its trading profits for the period and it does not have any non-trading profits, then it cannot claim any group relief.

Applying the restrictions

Under both the bank loss restriction and the general loss restriction, the ordering of reliefs is unchanged (so the relevant carried-forward losses will still come before most reliefs of the current period), but the amount of relevant carried-forward losses the company can use in its calculation will be restricted.

The manner in which the restrictions work also means that the company has a degree of choice in the amount of relevant carried-forward losses available.  The company can claim certain other reliefs up to an amount of profit that assumes no relevant carried-forward losses are available.  This is explained in more detail alongside an example at BKM304800 and BKM304850.