COM50010 - Claims / reliefs: loss and non-trading deficits carry-back: how COTAX treats carry-backs

COTAX treats a carry-back of trade losses or non-trading deficits as if it was apayment made on an effective date of payment (EDP (Word 41KB)). It does not treat it as a reduction in the charge.

Subject to some limitations, it calculates the EDP and computes interest accordingly, taking account of the rules in:

  • S87A(6) TMA 1970
  • 87A(4A) TMA 1970
  • S826(7A) ICTA 1988
  • S826(7C) ICTA 1988
  • S87A(7) TMA 1970
  • S826(7AA) TMA 1970.

See COM50020, COM50030, COM50040, COM50050, COM153020 and COM153030 for more information.

Postings following a loss carry-back

COTAX handles the interest provisions of loss and non-trading deficit carry-backs as follows.

  • It calculates the tax effect of the carry-back (‘LOS’ posting in function VPPD (View Payment and Posting Details)).
  • Treats the tax effect of the carry-back as a payment made on the date on which the carry-back is effective for interest purposes, records this date as the effective date of payment (EDP) and applies it to the ‘LOS’ posting.
  • Reconciles the AP record by debiting to it an amendment or self assessment charge (‘SAM’ or ‘SAA’ in Function VPPD) equal to the amended charge plus the amount of the ‘LOS’ posting. The ‘SAM’ or ‘SAA’ figure is equal to the original charge before the carry-back was allowed.

COTAX carries out the processing in the following order. It:

  • calculates the CT liability without the loss relief
  • compares that liability with the amount of CT due in the amendment or self assessment
  • records the difference as a ‘LOS’ posting
  • calculates the amended assessment amount ‘SAA’, or the self assessment amount ‘SAM’ by adding the amount of the ‘LOS’ posting to the actual amount of tax due on the amendment or the assessment.

Example 1 (Word 36KB), illustrates this.

Every amendment you subsequently make to the assessment results in the reversal of those postings and the calculation of new ones.

In calculating the new postings, COTAX does not take account of any earlier postings, repayments or versions of the assessment.

Because of this, COTAX sometimes miscalculates the ‘LOS’ posting unless you intervene.

Although COTAX does, with your assistance, get the amount of the ‘LOS’ posting right, there are still occasions when it can not cope with the interest consequences.

See:

  • COM50070 for more information on when COTAX cannot get the interest consequences right
  • COM50011 for a list of functions to use in particular situations
  • COM50012 for legislation applying to this subject.