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HMRC internal manual

Company Taxation Manual

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Corporation Tax self-assessment (CTSA): the payment obligation: ACT carry-back - late payment interest

ACT was abolished with effect from 6 April 1999 but it is likely that offices will continue to see cases involving ACT and claims to carry back.

Under ICTA88/S239 (3) a company may claim to carry back all or part of its surplus ACT of an accounting period (‘the later accounting period’) and treat it as ACT paid in respect of distributions made in accounting periods beginning in the six previous years (CTM20200).

TMA70/S87A (4) recognises that any tax remaining unpaid for ‘the earlier accounting period’, for which set-off takes place, is being reduced by a relief which originates later. It follows that late payment interest should continue to run until the due date for the later period.

Section 87A (4) achieves this by:

  • identifying the notional unpaid CT liability that would have been due if no ACT carry-back claim had been made,
  • charging Section 87A interest on the unpaid notional liability so computed, up to the normal due date for the accounting period from which the ACT is carried back.

Example 1 concerns a case where ACT carried back meets an unpaid liability of the earlier period. Interest is due on the amount covered by the ACT set-off. It is payable for the period from the due date of the earlier accounting period, to the due date for the period from which the ACT was carried back.

Example 2 concerns a case where the company has paid the CT for the earlier accounting period in full before the carry-back. No interest is chargeable because the company paid the amount of the liability disregarding the ACT carry-back claim on the due date.

Example 3 concerns a case where the ACT carried back displaces a relief already given for the earlier accounting period, because ACT takes precedence. This could be IT or CIS25/SC60 tax, for example. In these cases if you disregarded the carry-back claim there would still be no CT liability because the displaced relief would cover it. Consequently, no liability to late payment interest arises in these circumstances.

Example 1

  • Accounting period 1.1.94 to 31.12.94 - agreed and assessed CT liability £20,000.
  • Accounting period 1.1.95 to 31.12.95 - surplus ACT £5,000, ICTA88/S239 (3) claim carry-back to accounting period ended 31.12.94.

Paid £15,000 on due date 1.10.95. £5,000 unpaid.

Liability reduced to £15,000 after £5,000 ACT carry-back.

Interest on £5,000, the amount covered by the ACT set-off, is due for the period 1.10.95 to 1.10.96, which is the due date of the later accounting period.

Example 2

  • Accounting period 1.1.94 to 31.12.94 - agreed and assessed CT liability £20,000.
  • Accounting period 1.1.95 to 31.12.95 - surplus ACT £5,000, ICTA88/S239 (3) claim carry-back to accounting period ended 31.12.94.

Paid £20,000 on due date 1.10.95.

Liability reduced to £15,000 after £5,000 ACT carry-back.

£5,000 tax repaid on 1 7.96.

No interest is charged because £20,000, the amount of CT liability disregarding the ACT carry-back claim, was paid on the due date.

CT paid for the earlier accounting period is repaid, in consequence of the ACT carry-back claim, before the due date for the later accounting period. Note that this does not trigger an interest charge under TMA70/S87A (4) for the period up to the due date for the 1995 accounting period because, if the ACT carry-back claim were disregarded, there would have been no repayment.

Example 3

  • Accounting period 1 1.94 to 31.12.94 - agreed and assessed CT liability £20,000. After IT set-off £20,000 liability Nil.
  • Accounting period 1.1.95 to 31.12.95 - surplus ACT £5,000, ICTA88/S239 (3) claim carry-back to accounting period ended 31.12.94.
CT £20,000
   
Less ACT £ 5,000
Less IT £15,000
Overpaid IT £ 5,000

Liability still Nil after £5,000 ACT carry-back.

£5,000 IT repaid on 1.7.96.

Disregarding the ACT carry-back claim, there would have been no CT liability. This is because the IT set-off removed it.

No Section 87A interest liability is therefore created.

Repayment interest on the IT repayment is dealt with at CTM92310. (COTAX would incorrectly charge late payment interest in this kind of case because it would assume that the ACT carried back satisfied a ‘real’ tax liability - see (b) of CTM92420.)