BKM304600 - Bank loss restriction: calculation of carried-forward reliefs available: no impact on claims to double taxation relief

In most cases it is left to the company to organise the way deductions are allocated to best effect in terms of double tax relief (INTM167090). This is still true within the calculation of relevant profits, and the company can choose, within trading profits or non-trading profits and within the normal rules, to set deductions in such a way as to secure the maximum amount of credit relief for doubly taxed source income.

This applies for both the pre-1 April 2017 calculation at CTA10/S269CD and the post-1 April 2017 calculation at CTA10/S269ZF.

Example

In its accounting period ended 31 March 2016:

  • The company has £5m of pre-2015 carried-forward trading losses.
  • The company makes trading profits of £4m for the year ended 31 March 2016, of which £1m is foreign source income that has been taxed at 30% in another jurisdiction.
  • The company claims group relief of £2m, and has no other profits or reliefs for the year. The relevant trading profits are therefore (£4m less £2m) £2m.

The company can choose to assume that the group relief has been allocated against the UK source income, meaning that the £2m relevant trading profits will still contain £1m of profits with double tax relief available. Depending on the circumstance it may not be relevant for the company to make this assumption as part of the calculation under S269CD.

The company can use (50 percent of £2m relevant trading profits) £1m of pre-2015 carried-forward trading losses in its actual tax calculation under CTA10/S4. As per the normal rules, the company can assume that this is allocated in the most beneficial way and include the foreign source income in the £3m available after taking the £1m of pre-2015 carried-forward trading losses into account, and then carry through the assumption that the group relief is claimed against UK source income.

The company has £1m of profits remaining, all of which is foreign source and has double tax relief available.