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HMRC internal manual

COTAX Manual

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Claims / reliefs: loss and non-trading deficits carry-back: introduction

This guidance is mainly for staff in responsible offices. Staff in Debt Management and Banking (DMB) offices may be interested in some of the information and examples.

The information applies to both Corporation Tax Self Assessment and CT Pay and File APs.

Trading losses

The legislation on trade losses is in Chapter 2 of CTA 2010 at s37.

Non-trading deficits

The legislation is in Chapter 16 CTA 2009, at s456 - s463.

In general

Legislation restricts the carry back of companies’ trading losses and non-trading deficits dealt with under the loan relationship rules to one year. A three year carry back is allowed for trading losses incurred in the final year of trading.

Budget 2009: temporary extension to carry-back of trading losses

For accounting periods ending between 24 November 2008 and 23 November 2010, a company could carry back trading losses to the preceding three year period rather than 12 months. Any loss had to be fully offset first against profits of most recent years before being carried back to earlier years.

After losses had been carried back under the normal rules, a maximum of £50,000 was available to carry back to the earlier two years.

This £50,000 limit applied to each 12-month period within the duration of the extension; there was a cap of £50,000 on losses incurred in accounting periods ending in the 12 months to 23 November 2009 and a separate cap of £50,000 for losses arising in accounting periods ending in the 12 months to 23 November 2010.

Interest consequences

In general, a trading loss carried back to an AP falling wholly within the previous 12 months has no interest consequences for the receiving AP and therefore needs no special treatment in COTAX because the loss of the donating AP takes the interest effective date (EDP) of the recipient AP.

The only exception to this is if you are changing the rate at which the tax is charged; see COM50113 for further guidance.

A trading loss carried back to an AP falling beyond the previous 12 months does have interest consequences.

Legislation

For APs ending after 30 September 1993:

  • subsections (6) of S87A TMA 1970 and (7A) of S826 ICTA 1988 deal with the interest provisions when there is a carry-back of trade losses to an AP ending more than 12 months earlier than the AP in which the losses arise
  • subsections (4A) of S87A TMA 1970 and (7C) of S826 ICTA 1988 deal with the interest provisions relating to the carry-back of non-trading deficits.

The effect of the provisions is to:

  • charge interest on any unpaid liability that is satisfied by the carry-back for the period up to the CT due date for the AP in which the loss is incurred
  • deny repayment interest on any overpayment caused by the carry-back for any period prior to the CT due date for the AP in which the loss is incurred.

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COTAX support

COTAX can calculate the interest consequences of a carry- back automatically, taking account of these rules, except where the following apply.

  • A repayment or reallocation has previously been made for the AP as a result of a carry-back.
  • The carry-back claim results in the displacement of another relief or set-off that would have been given if the claim had not been made. See COM50080 for more information.
  • The amount of the carry-back is subsequently amended.
  • The carry-back of a loss or non-trading deficit reduces the rate of liability from the main rate of CT with marginal relief to the small profits rate. See COM50070 for more information.
  • There is a loss or a non-trading deficit carry-back and you have overwritten the COTAX calculated marginal relief figure. See COM50070 for more information.
  • There is more than one loss or non-trading deficit carried back to the AP and you need to alter the COTAX default order of processing the losses or deficits. See COM50100 for more information.

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Caseworker action

Caseworkers must sometimes intervene in these exceptional cases because they are responsible for making sure that any interest is correctly calculated and for making any repayments that COTAX will not make automatically. See the references in the list above to relevant parts of COM.

The CT Unit Cumbernauld is responsible for calculating and charging any interest COTAX cannot handle automatically. They often depend on you to pass on relevant information using form CT250(P). See COM50090 for more information.