HMRC internal manual

Banking Manual

BKM305200 - Bank loss restriction: Calculation of carried-forward reliefs available: calculation of relevant profit APs from 1/4/17 – modified total profits

CTA10/S269ZF(3) step 1

The modified total profits are the starting point for calculating a company’s qualifying trading profits and qualifying non-trading profits. The qualifying profits, in turn, are used to calculate the company’s relevant trading profits, relevant non-trading profits and relevant profits.

To calculate the modified total profits, the amount of total profits is calculated in accordance with CTA10/S4(2) step 1, with the following modifications (S269ZF(4)):

  • Exclude any income from distributions within the scope of CTA09/Part 9A. 
  • Exclude ring fence profits of oil and gas companies as defined in CTA10/S276.
  • Exclude oil contractor’s ring fence profits as defined in CTA10/S356LD.
  • If a company is an insurance company exclude any ‘I minus E’ profit within FA12/S141(2).
  • Exclude deductions for trade losses that are carried forward and automatically set against subsequent trade profits under CTA10/S45(4)(b) and CTA10/S45B. (The exception to this is certain deductions specified at CTA10/s269ZF(4)(e)(i) to (x), set out below.)
  • Exclude any restricted carried-forward oil and gas ring fence losses that are set against profits from related activities under CTA10/S303B(4) or CTA10/S303D(5).
  • Exclude carried-forward non-trading loan relationship deficits that can be set only against non-trading income under CTA09/S457(3) or 463H(4).

The result is the modified total profits.

If the result of these modifications is a figure of nil or less than nil, the company is treated as having qualifying trading profits and qualifying non-trading profits of nil. There is no need to follow any further steps to calculate the qualifying trading and non-trading profits.

If the company has modified total profits greater than nil, the next step is to divide the profits into {trading and non-trading profits}.

Distributions within the scope of CTA09/PART9A

Distributions are charged to corporation tax only if they are not exempt. CTA09/PART9A is designed to ensure that the great majority of dividends and other distributions will be exempt. (See INTM650000 for more details.)

However, where distribution income constitutes trading income within CTA09/Part 3, it is not within the scope of Part 9A and will not be excluded from total profits for the purposes of computing the carried-forward losses the company can use.

Deductions specified at CTA10/s269ZF(4)(e)(i) to (x)

The company makes no deduction for most losses carried forward under CTA10/S45(4)(b) and CTA10/S45B when calculating its modified total profits.

However, there are exceptions to this. Carried-forward losses of certain types of industry or business are carved out of the loss restriction calculation and can be relieved without restriction.  We would not expect a banking company to carry on any on these types of business but the losses are listed here for information:

  • Losses of a film trade (CTA09/1209(3), CTA09/1210(5A) and CTA09/1211(7A)),
  • Losses of a television programme trade (CTA09/1216DA(3), CTA09/S1216DB(5A) and CTA09/S1216DC(7A)),
  • Losses of a video game trade (CTA09/1217DA(3), CTA09/S1217DB(5A) and CTA09/S1217DC(7A)),
  • Losses of a theatrical trade (CTA09/S1217MA(3) and CTA09/S1217MC(9)),
  • Losses of an orchestral trade (CTA09/S1217SA(3) and CTA09/1217SC(9)),
  • Losses of a museum or gallery exhibition trade (CTA09/S1218ZDA(3) and CTA09/S1218ZDC(9)),
  • Losses of a UK or EEA furnished holiday lettings business (CTA10/65(4B) and CTA10/S67A(5A)),
  • Insurance companies’ shock losses (CTA10/S269ZI(1)),
  • Losses of oil and gas ring fence trades that are unrestricted (CTA10/S304(7)), and
  • Pre-1 April 2017 losses from oil contractor activities (CTA10/S356NJ(2).

Any losses of the above types carried forward under s45(4)(b) or s45B are deducted when a company calculates its modified total profits, unless the company has made a claim to prevent this relief and carry the amounts forward to a later accounting period (s45(4A), s45B(5)).