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Unlike carried-back trading losses or excess capital allowances, non-trading deficits on loan relationships can only be set against non-trading profits under CTA09/Part 5 (CFM32070, CTA09/S463, S463F)

For periods prior to 1 April 2017, the calculations at Steps 4 to 6 of CTA10/S269CD make assumptions about how a company鈥檚 relief against total profits is given in terms of trading and non-trading profits (by a proportionate split, (BKM304300).

For periods from 1 April 2017, CTA10/S269ZF(3) step 4 allows the company to choose how it allocates in-year relief against trading and non-trading profits.

in both cases, this is only for the purposes of calculating the amounts of relevant trading profits and relevant non-trading profits under the restriction, and does not prejudice the manner in which the company may choose to set the relief when looking at the amount of CTA09/Part 5 profits available for relief under CTA09/S459(1)(b) or S463B(1)(b).

Example

The banking company has 拢100m of pre-2015 carried-forward non-trading deficits.

In the year ended 31 March 2016 the banking company has 拢20m of trading profits and 拢80m of non-trading profits (arising under CTA09/Part 5). For the purposes of step 3 of CTA10/S269CD the company therefore has a trading proportion of (20/100) 20% and a non-trading proportion of (80/100) 80%.

The company claims group relief of 拢50m. The proportionate split in steps 4 to 6 of S269CD means that the 拢50m is set (20%) 拢10m against trading profits and (80%) 拢40m against non-trading.

This means that the company has:

• relevant trading profits of (拢20m less 拢10m) 拢10m
• relevant non-trading profits of (拢80m less 拢40m) 拢40m.

The relevant non-trading profits mean that the company has 拢20m of pre-2015 carried-forward non-trading deficits available under CTA10/S269CB.

According to the calculation in S269CD the company has:

• trading profits of 拢20m less group relief of 拢10m = 拢10m
• non-trading profits of 拢80m less carried forward deficits of 拢20m = 拢60m less group relief of 拢40m = 拢20m

This gives taxable total profits of 拢30m.

This split, however, is for the purposes of the s269CD calculation only, and the company鈥檚 actual tax calculation under CTA10/s4 will be:

• trading profits of 拢20m
• plus non-trading profits of 拢80m less carried forward deficits of 拢20m = 拢60m

• to give total profits of 拢80m

• group relief of 拢60m is deducted from the 拢80m total profits to give taxable total profits of 拢30m.

Total profits is still undifferentiated, so in the actual tax calculation under CTA10/s4 the company has made no 鈥榗hoice鈥� in how the group relief has been given.

In the year ended 31 March 2017 the company has 拢nil trading profits, and makes a non-trading deficit of 拢50m, which it chooses to carry back through a claim under CTA09/S459(1)(b) against profits under CTA09/Part 5.

Under the normal rules, the company would choose to assume that the group relief was set 拢20m against the trading profits and 拢30m against the non-trading profits, leaving 拢30m of non-trading profits available for relief by the carry-back. Even though the calculation at S269CD has resulted in non-trading profits of 拢20m, in the actual tax calculation the company may still assume that 拢30m of non-trading profits are available for relief.

Because the carry-back does not affect the calculation of relevant profits (CTA10/S269CD(2)(d)) the banking company can set the carried-back deficit against the 拢30m of non-trading profits and reduce its profits for the year to 31 March 2016 to 拢nil.

For periods from 1 April 2017, the same principle applies for the calculation of relevant profits at CTA10/S269ZF and S269ZD(5).