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HMRC internal manual

Compliance Handbook

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HM Revenue & Customs
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Penalties for Inaccuracies: Calculating the penalty: Losses impact on potential lost revenue calculation: Losses available Capital Gains Tax example

You must check the date from which these rules apply for the tax or duty you are dealing with. See CH81011 for full details.

Deepak returns capital gains of £65,000 and notifies capital losses of £35,000 for 2010-11. He also has £25,000 unused allowable capital losses brought forward from earlier tax years. Deepak’s income uses up all his basic rate band so all gains (other than those qualifying for entrepreneurs’ relief) are taxable at 28%.

Gains £65,000  
     
Less current period losses £35,000  
Net gains £30,000  
Less losses brought forward £19,900 Losses carried forward £5,100
  £10,100  
Less annual exempt amount £10,100  
Chargeable to CGT 0  

The 2010-11 return is found to contain a careless inaccuracy in the calculation of the losses for the tax year. True allowable capital losses in the year are £13,000.

The potential lost revenue (PLR), assuming liability at 28% on his taxable amount, is

Gains £65,000  
     
Less current period losses £13,000  
Net gains £52,000  
Less losses brought forward £25,000 Losses carried forward NIL 
  £27,000  
Less annual exempt amount £10,100  
Chargeable to CGT £16,900  

PLR is 16,900 x 28% = 4,732 

The wrongly recorded current period loss has been wholly used by deduction from the gains so only the normal rule applies. No part of the wrongly recorded loss is unused so the 10% rule does not apply.