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HMRC internal manual

COTAX Manual

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HM Revenue & Customs
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Claims / reliefs: loss and non-trading deficits carry-back: loss carry-back / late payment interest

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 late payment interest consequences.

Under s37(3)(b) CTA 2010 a company may only claim to carry back trade losses against profits of the preceding 12 months unless it is a terminal loss or covered by the temporary extension of carry back to three years introduced in Finance Act 2009. See COM50001 for more information.

S87A(6) TMA 1970 recognises that any CT remaining unpaid for the earlier AP for which the set-off takes place is being reduced by a relief that originates later. It ensures that late payment interest continues to run until the due date for the later AP unless the carry-back is against profits of an AP falling wholly within the previous twelve months.

Section 87A(6) achieves this by:

  • identifying the notional unpaid CT liability that would have been due if the loss carry-back claim had not been made
  • charging Section 87A interest on the unpaid notional liability so computed, up to the earliest due date of the AP from which the loss was carried back.

Example 1 (Word 30KB) concerns a case where a loss carried back meets an unpaid liability of an earlier AP. Interest is due on the amount covered by the loss set-off and is payable for the period from the due and payable date of the earlier AP, to the due and payable date of the AP from which the loss was carried back. The example uses accounting periods where the temporary three year carry back of losses was permitted.

Example 2 (Word 30KB) concerns a case where the company has paid the CT for the earlier AP in full before the carry-back. No interest is chargeable because the company paid the amount of the CT liability disregarding the loss carry-back claim on the due date. The example uses accounting periods where the temporary three year carry back of losses was permitted.

If the company had paid the CT for the earlier AP in full, but late, interest would be due from the due date to the date of payment. The loss carry-back would attract no further interest in these circumstances.

In Example 3 (Word 31KB) the loss carried back displaces a relief already given for the earlier AP because the loss takes precedence. This could be Income Tax for example. In these cases, if you disregarded the loss carry-back claim there would be no CT liability.

See COM50021 for legislation applying to this subject.