Under current rules, banks and building societies which have accumulated trading losses can carry these forward and set them against future profits on an unrestricted basis. Likewise non-trading loan relationship deficits can be carried forward and set against non-trading income. Excess management charges are carried forward and treated as management charges in the next period.
With effect from 1 April 2015, banking company profits which can be covered by these relevant reliefs and losses, will be restricted to 50%. Any profits of a banking company with an accounting period straddling 1 April 2015 will be split on a just and reasonable basis to ascertain what proportion is subject to the capping. There is an exemption however for losses arising in a start-up period.
This tightening of the tax rules intimated as “pay-back” for public support during the financial crisis could generate up to £4bn in extra tax over the next five years.