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HMRC internal manual

Company Taxation Manual

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HM Revenue & Customs
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ACT: set-off against CT on profits: interest advantage pre pay and file

FA89/S157

For accounting periods ending before 1 October 1993 FA89/S157 amended the interest charge provisions of TMA70/S86 for claims to carry back or surrender ACT made on or after 14 March 1989. This countered manipulation by companies to gain an interest advantage. These rules are summarised below.

Interest under Section 86

Without Section 157, a carry back of ACT would have produced a discharge of CT for an earlier period which would be effective for Section 86 purposes as though the amount involved had never been charged. This could have extinguished or reduced Section 86 interest already charged on late payment, or prevented a Section 86 charge being raised where the earlier liability remained unpaid (despite the fact that the ACT carried back might have been accounted for some years later).

Section 157 countered this. Section 86 interest was maintained on the reduction in liability resulting from the carry-back of ACT until nine months and one day after the end of the accounting period from which the ACT was carried back. Any existing Section 86 interest charge was then maintained, or could be raised on the earlier liability that would be unpaid but for the ACT carried back.

Example

There was surplus ACT in the accounting period ended 31 March 1993. This was carried back to accounting period ended 31 March 1992 against unpaid CT. The unpaid CT carried Section 86 interest until 1 January 1994 - 9 months and 1 day after 31 March 1993.

Surrender of ACT

ACT carried back to an earlier accounting period could replace ACT that had previously been set- off in that earlier CT assessment. The company could have claimed to surrender this previously used ACT to a subsidiary company.

Prior to FA89/S157 the receiving company might have been entitled to a repayment including supplement. Meanwhile the surrendering company would only have suffered an interest charge where the surrender created additional unpaid liability on an open assessment. If an assessment under ICTA88/S252 were needed, that would only carry interest from 30 days after the date of issue, (CTM81235).

To prevent this happening, FA89/S157:

  • backdated the interest charge arising on a Section 252 assessment, and
  • provided that ACT carried back to prevent assessment under Section 252 was to be ignored in calculating Section 86 interest on the deemed Section 252 assessment until after nine months and one day from the end of the period from which the ACT was carried back.

Except for cases also involving liability under Section 252, this legislation only ran where there was unpaid CT for the earlier period. In this context ‘unpaid’ meant ‘unpaid at the reckonable date’. The legislation did not apply where:

  • for an earlier open assessment a non-postponed amount which had previously been paid on or before the reckonable date was in whole or in part repaid to the company in consequence of an ACT carry-back claim (and see CTM20210 concerning the restriction of repayment supplement).

Furthermore, if a Section 86 charge had already arisen on the late payment of that non-postponed amount then Section 157 simply protected that charge and did not extend the scope of that charge.

Information to the Collector

The key to the successful operation of Section 157 was the provision of the necessary information to the Collector.

A charge, or charge amendment, would not tell the Collector that it was caused by a carry-back or surrender of ACT. There would also have been amendments to charges dropped from the computer record and surrenders matched by ACT carry-back which would be invisible to the Collector. So the Accounts Office CT Section was given separate notification using form CT250.