Corporation Tax Act 2009 section 133A

Compensation payments: restriction of deductions

Section 133A restricts the tax deductions that banking companies can claim for compensation payments made to customers in respect of misconduct occurring on or after 29 April 1988.

• Banking companies cannot deduct compensation costs paid to customers for relevant misconduct when calculating their trading profits, provided the disclosure condition is met.
• The restriction also applies where an associated company pays compensation on behalf of the company whose conduct gave rise to the claim, unless an arm's length recharge arrangement exists between the two companies.
• Certain categories of expense are excluded from the restriction, including administrative costs, IT system failure costs, and costs arising from loss or damage mainly attributable to a third party.
• The restriction applies regardless of whether the compensation is paid directly by the company itself or by another person on its behalf.