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HMRC internal manual

Banking Manual

Bank loss restriction: targeted anti-avoidance rules: overview


There is a targeted anti-avoidance rules that counters arrangements which accelerate the use of restricted losses.  The anti-avoidance rule apply to tax arrangements entered into on or after 3 December 2014, but the effects of the rule will commence with the main restriction (see BKM307600)

There are three conditions, all of which must be met for the rule to apply.

Condition A – profits from the tax arrangements

The arrangements must increase the banking company’s profits. As a consequence of the arrangements profits arise to a company against which the banking company could set relevant carried-forward losses.

This means that the company must have relevant carried-forward losses, and the tax arrangements must increase the company’s income and generate a profit in that company of a kind that the company could use one or more of its carried-forward reliefs against (that is will be recognised in the calculation of relevant profits.

If the profit would have arisen to the company even absent the arrangement then the rule will not apply (but see BKM307200 on the scope of the tax arrangements).  If the profits would have arisen to another company in the group, but arise to the company in question as part of the tax arrangements, this condition will be met.

Condition B – main purpose test

The main purpose, or one of the main purposes, of the arrangements is to secure a corporation tax advantage involving:

  • The additional profits, and
  • The use of relevant carried-forward losses against those profits.

The corporation tax advantage is assessed by reference to the position of the banking company itself, or, if there are connected companies involved in the tax arrangement, by reference to the position of the companies taken together.  Hence the tax advantage may be the net tax position of the connected companies as a consequence of the arrangements.

Corporation tax advantage is defined in CTA10/S269CK(9) and includes:

  • A relief from corporation tax or increased relief from corporation tax


  • A repayment of corporation tax or increased repayment of corporation tax
  • The avoidance or reduction of a charge to corporation tax or an assessment to corporation tax
  • The avoidance of a possible assessment to corporation tax
  • The deferral of a payment of corporation tax.

It may be the case that there are other main purposes to the tax arrangements, but the condition will still be met where one of the main purposes was the tax advantage.

Condition C – comparison of anticipated tax value and non-tax value 

When the tax arrangements were entered into the anticipated tax value of them was more than the anticipated non-tax value.  Guidance on the meaning of tax value and non-tax value is in BKM307300.  The assessment of these values is done at the level of the banking company or the banking company taken with any other companies party to the tax arrangements.  So even where one of the main purposes of the tax arrangements was to obtain a tax advantage, if the anticipated non-tax value of the arrangements was the greater part of the overall value anticipated from the arrangements then the rule will not apply.

BKM307700 includes an example of where the TAAR would apply and BKM307750 examples of where HM Revenue & Customs would not apply the rules.