Finance Act 1996

3 (1) This paragraph applies where a claim is made under section 83(2)(c) of this Act for the whole or any part of the deficit to be carried back to be set off against profits for earlier accounting periods.

(2) The claim shall have effect only if it relates to an amount that is equal to whichever is smaller of the following amounts, that is to say—

(a) so much of that deficit as is neither—

(i) an amount in relation to which a claim is made under subsection (2)(a) or (b) of section 83 of this Act, nor

(ii) an amount excluded by virtue of subsection (4) of that section from the amounts in relation to which claims may be made under subsection (2) of that section;

and

(b) the total amount of the profits available for relief under this paragraph.

(3) Where the claim has effect, the amount to which the claim relates shall be set off against the profits available for relief under this paragraph—

(a) by treating those profits as reduced accordingly; and

(b) to the extent that those profits are profits for more than one accounting period, by applying the relief to profits for a later period before setting off any remainder of the amount to which the claim relates against profits for an earlier period.

(4) Subject to sub-paragraph (5) below, the profits available for relief under this paragraph are the amounts which, for accounting periods ending within the permitted period, would be taken—

(a) apart from any relief under this paragraph, and

(b) after the giving of every relief which under sub-paragraph (6) below falls to be given in priority to relief under this paragraph,

to be chargeable under Case III of Schedule D as profits and gains arising from the company’s loan relationships.

(5) Where any accounting period begins before the beginning of the permitted period but ends in the course of it—

(a) any amount chargeable in respect of that accounting period under Case III of Schedule D as profits and gains of the company’s loan relationships shall be apportioned according to the proportions of the accounting period falling before and after the beginning of the permitted period; and

(b) the amount attributable, on that apportionment, to before the beginning of the permitted period shall not be available for relief under this paragraph.

(6) The reliefs which fall to be given in priority to relief under this paragraph in respect of any loss are—

(a) any relief in respect of a loss or deficit incurred or treated as incurred in an accounting period before the deficit period;

(b) any relief under section 338 of the Taxes Act 1988 (charges on income) in respect of payments made wholly and exclusively for the purposes of a trade;

(c) where the company is an investment company for the purposes of Part IV of that Act—

(i) any allowance under section 28 of the [1990 c. 1.] Capital Allowances Act 1990 (machinery and plant of investment companies);

(ii) any deduction in respect of management expenses under section 75 of the Taxes Act 1988; and

(iii) any relief under section 338 of the Taxes Act 1988 in respect of payments made wholly and exclusively for the purposes of its business;

(d) any relief under section 393A of the Taxes Act 1988 (trading losses set against profits of the same or any preceding accounting periods); and

(e) any relief in pursuance of a claim under section 83(2)(a) or (b) of this Act.

(7) In this paragraph “the permitted period” means the period of three years immediately preceding the beginning of the deficit period so far as that three year period falls after 31st March 1996.