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HMRC internal manual

Banking Manual

Bank loss restriction: calculation of carried-forward reliefs available: where banking company has more than one trade

In some cases a banking company may have more than one trade either for statutory reasons or, more rarely, as a question of fact.  Where the banking company has pre-2015 carried-forward trading losses in multiple trades the company is able to allocate the restriction between the different pools of losses.

The examples below relate to the pre-1 April 2017 calculation at CTA10/S269CD. However, the same principle applies for the post-1 April 2017 calculation and for the general loss restriction (CTA10/PART7ZA, CTA10/S169ZF).

Example 1

  • The banking company has two trades: Trade A and Trade B.  The company has £2m of pre-2015 carried-forward trading losses from Trade A, and £2m from Trade B
  • In the year ended 31 March 2016 the company makes £0.5m of trading profits in Trade A, and £0.5m for Trade B.  The company has no other profits or reliefs for the period.

The company performs a calculation under CTA10/S269CD of relevant profits (BKM304300) and finds that it has trading profits at step 2 totalling £1m, and (with no other reliefs for the period) relevant trading profits at step 5 of £1m.

CTA10/S269CA(2) would therefore allow (50% of £1m) £0.5m of relief for the pre-2015 trading losses.  The company can choose whether the £0.5m of allowable pre-2015 carried-forward trading losses is for the pool of Trade A losses, Trade B losses, or a combination of the two.

Example 2

The calculation at CTA10/S269CD will total the profits of all trades for the purposes of calculating relevant trading profits, even where the banking company does not have pre-2015 carried-forward trading losses in all of those trades.

So, if the company in example 1 had no carried-forward losses for Trade B, it would still have relevant trading profits of £1m, meaning that it could allow £0.5m of pre-2015 carried-forward trading losses.  The only available pre-2015 carried-forward trading losses are for Trade A, so this would mean that the company was effectively unaffected by the restriction.

Note that an arrangement to secure a position such as this by transferring in profits for tax motivated reasons could be caught under the targeted anti-avoidance rule in CTA10/S269CK (BKM307100).

If the company did have other reliefs for the period (say group relief) and claimed them against its trading profits it could decide which trade’s profits were so relieved.  This would reduce the overall amount of relevant profits for the purposes of CTA10/S269CD, but it might be beneficial, in Example 2, for the company to choose to relieve the profits of Trade B which has no carried-forward losses.