BKM305400 - Bank loss restriction: Calculation of carried-forward reliefs available: calculation of relevant profit APs from 1/4/17 – in-year reliefs and qualifying profits

CTA10/S269ZF(3) steps 2, 4 and 5

Once the company has divided its modified total profits into trading and non-trading profits, it deducts in-year reliefs in order to calculate qualifying trading and 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.

In-year reliefs are any amounts that can be set against a company’s total profits under step 2 of CTA 10/S4, with the exception of any excluded deductions (see below) (CTA10/S269ZF(3) step 2 and CTA10/S269ZF(5)).

The company may choose how its in-year reliefs are allocated. Provided that the amount of profit is sufficient, the company can allocate the whole of its in-year reliefs against trading profits, the whole amount against non-trading profits, or part of its in-year reliefs to trading profits and part to non-trading profits. Unlike the pre-1 April 2017 calculation at CTA10/S269CD, there is no need for companies to allocate in-year reliefs proportionately.

However, in-year reliefs cannot be deducted in a way that reduces either the trading profits or non-trading profits below nil. For example, a company with £50m in-year reliefs, £100m trading profits and £20m non-trading profits cannot allocate more than £20m in-year relief to its non-trading profits.

The company only allocates amounts where it has made a claim for in-year relief.

Excluded deductions (CTA10/S269ZF(5))

The legislation at s269ZF(3) steps 2 and 4 does not explicitly require the company to deduct in-year reliefs. Instead, it requires companies to calculate the sum of amounts which could be relieved against the company’s modified total profits, ignoring certain excluded deductions specified at s269ZF(5).

The excluded deductions are, broadly, deductions for any of the carried-forward losses and deficits subject to the general loss restriction, and deductions for losses carried back from later accounting period.

The effect is that the amounts remaining are in-year losses and deficits for which the company can make a claim for relief against total profits. These are the amounts that a company allocates against its trading and non-trading profits.

Excuded deductions include all carried-forward losses that can be deducted from total profits and that are subject to the general loss restriction (listed at CTA10/S269ZD(3)). These include:

  • Trading losses carried forward for deduction form total profits (CTA10/S45A),
  • Non-trading loan relationship deficits carried forward for deduction from total profits (CTA09/S463G),
  • Non-trading losses on intangible fixed assets carried forward (CTA09/S753(3)),
  • Management expenses carried forwad (CTA09/S1219 and CTA09/ S1223(3)),
  • UK property business losses carried forward (CTA10/S62or CTA09/S1219 in conjunction with CTA10/s63(3)),
  • Dedctions under CTA10/PART5A as group relief for carried-forward losses.

Certain carried-forward losses relating to oil activities, creative industries and basic life assurance and general annuity business (BLAGAB) trades are also subject to the general loss restriction and are also therefore excluded deductions (CTA10/S269ZB(3)(b), S269ZD(3)(e), (h), (i) and (k)).

Note that trading losses carried forward for relief against profits of the same trade (under CTA10/S45, S45B, S303B(4) or S303D(5)) and NTLRDs carried-forward for relief against non-trading profits only (CTA09/S457(3) or S463H(5)) have already been removed from the calculation, before the company reaches this point. This was one of the effects of the legislation at S269ZF(3) Step 1 and S269ZF(4), which calculate the company’s modified total profits (BKM305200).

The following losses and deficits carried back are excluded deductions:

  • Deductions for trading losses carried back from a later accounting period under CTA10/S37,
  • Deductions for trading losses carried forward to a terminal period, under CTA10/S45F,
  • Deductions for excess capital allowances for special leasing carried back from a later accounting period under CAA2001/S260(3), and
  • Deductions for non-trading loan relationship deficits carried back from a later accounting period under CTA09/S463E.