Claims / reliefs: loss and non-trading deficits carry-back: getting the ‘LOS’ posting correct
For APs where there is more than one rate of tax and marginal relief, COTAX, if left to itself, calculates the loss posting (‘LOS’) using only the small profits rate of tax when the tax effect of the carry-back is to change the rate of liability from the main CT rate with marginal relief to small profits rate.
COTAX uses figures according to the circumstances as follows.
When the COTAX-calculated liability before or after giving effect to the carry-back involves marginal relief and you overwrite the COTAX calculation of marginal relief, COTAX uses your marginal relief figure when calculating the ‘LOS’ posting.
When the COTAX-calculated liability before or after giving effect to the carry-back involves marginal relief and you overwrite the COTAX calculated marginal relief figure to nil, COTAX calculates the ‘LOS’ posting using the main CT rate and does not calculate any marginal relief if either of the following is shown in the assessing screen COT120F:
- an amount of Franked Investment Income (FII) or
- a number of 51 per cent companies.
In general, it is not good practice to overwrite COTAX calculated figures. COTAX calculates the rate of tax applicable for an assessment and marginal relief, if appropriate, using the information from the return and taking account of any amendments that you make in the assessing screen.
Included in the return information is the number of 51 per cent companies and the amount of Franked Investment Income. You can alter these details in screen COT120F if they are incorrect.
With the information it holds, COTAX calculates the correct amount of tax, at the correct rate, with marginal relief if appropriate. It cannot do this if tax is chargeable at a special rate, or the company is otherwise not entitled to claim the benefit of the small profits provisions.
When you give relief for a carry-back claim, it usually results in an overpayment of tax. The carry-back may, however, meet an unpaid liability. In either event it is essential that COTAX produces the correct amount of loss posting to make sure the interest, repayment or late payment, is calculated correctly.
See COM50071 for a list of functions to use in particular situations.