D7.705 Loss relief restriction
For accounting periods beginning on or after 1 April 2015, the proportion of a banking company's annual taxable profit that can be offset by carried-forward losses (ie losses carried forward from before 1 April 2015) is restricted. For accounting periods beginning on or after 1 April 2016, the restriction is set at 25%; only 25% of the banking company's profits can be offset by the carried forward losses. Prior to 1 April 2016, the restriction was set at 50%1. For what constitutes a banking company see D7.702.
This restriction is in addition to the general loss relief restriction that apples for accounting periods beginning on or after 1 April 2017 — where only 50% of profits in excess of (broadly) £5m can be offset by brought forward losses; see D1.1108B2.
The restriction applies to trading losses, non-trading loan relationship deficits and management expenses carried forward3 from accounting periods ending before 1 April 2015 (a 'pre-2015 loss')4.
Where a company's accounting period begins before and ends after 1 April 2015, the accounting period is split into two notional periods and profits, losses etc apportioned on a time basis or any other just and reasonable basis5. Similarly where an accounting period straddles 1 April 2016 it is split into two notional accounting periods and profits/losses allocated on a time basis, or a just and reasonable basis (if a time basis would be unfair)6.
The rationale behind this restriction is to prevent banks, that had built up exceptionally large losses as