COTAX Manual

COM50085 - Claims/reliefs: loss and non-trading deficits carry-back: changing the EDP examples

Example 1

This example deals with the position when a loss carried back to an AP displaces another available relief, without resulting in a repayment of CT from the COTAX record.

AP 01/04/2019 to 31/03/2020

Date of event	Event	Consequence
31/03/2021	Return filed Profits Tax (20%) IT set off Tax payable	£20,000 £4,000 £4,000 NIL
30/11/2022	Claim to carry back trade loss from APE 31/03/2022	£4,000 (Tax effect)
30/11/2022	Claim to repayment
01/02/2023	Repayment of IT	£4,000

Legal Consequences
S87A Taxes Management Act (TMA) 1970 

No liability
There is no charge to late payment interest on the CT liability, which was covered by Income Tax and is now covered by a trade loss carried back. If the carry-back claim had not been made there would still have been no CT liability. 

S826(7A) Income and Corporation Taxes Act (ICTA) 1988

Due on £4,000 from 01/01/2023 (the due date of the AP from which the loss is carried back) to 01/02/2023 (the date of repayment).

Procedure

Use function RAMA to record the taxpayer amendment including the loss.

Please note that: COTAX will calculate the effective date of payment (EDP) of the ‘LOS’ posting as 01/01/2023 (the due date of the AP from which the loss is carried back). You must amend the EDP of the carry-back otherwise COTAX will wrongly charge Section 87A interest from 01/01/2021 to 01/01/2023.

COTAX sees the ‘LOS’ posting as a payment made on 01/01/2023 against a liability of £4000 due on 01/01/2021. As the charge has already been met by IT set off, the correct EDP to enter on screen COT120M in function RAMA is 01/01/2021 (the date on which the displaced IT set-off was effective for late interest purposes).
Use DSET and function DIRR (Direct Repayment) to make the repayment of Income Tax together with the related repayment interest, entering an EDP of 01/01/2023 (the effective date that the IT overpayment arises, s826 (7A)(c)).

Example 2

This example deals with a case where a loss carry-back displaces a set-off or relief otherwise available for the AP.
The carry-back is only partially utilised in displacing the earlier set-off or relief, and results in a repayment of CT from the COTAX record.
The example deals with a carry-back of losses that displaces a set-off of Income Tax.

AP 01/04/2019 to 31/03/2020

Date	Event	Consequence
01/01/2021	Payment	£2,000
31/03/2021	Return filed Profits Tax (20%) IT set off Tax (due and paid)	£25,000 £5,000 £3,000 £2,000
01/01/2023	Return including claim to carry back loss from APE 31/03/2022 Claim to repayment	£4,000 (Tax effect)
01/04/2023	Amended assessment Profits Tax (20%)	£25,000 £5,000
	Loss c / b (displacing IT of £2,000)	£4,000 (tax effect)
	Amended IT set-off Tax (due)	£1,000 NIL
01/04/2023	Repayment of CT	£2,000
01/04/2023	Repayment of IT	£2,000

Legal Consequences
S87A Taxes Management Act (TMA) 1970 

No liability

There is no charge to late payment interest on the £2,000 of the CT liability that was covered by Income Tax and is now covered by a loss carried back. The CT liability, ignoring the carry-back claim, is £2,000 and that amount was paid on the due date.

S826(7A) Income and Corporation Taxes Act (ICTA) 1988

Due on £4,000 (CT plus IT) from 01/01/2023 (the due date of the AP from which the loss has been carried back) to 01/04/2023 (the date of repayment) (S826(7A) ICTA 1988). 

Procedure

The computer would charge late payment interest (LPI) on £2,000 (the amount of IT displaced by the loss carry-back) from 01/01/2021 to 01/01/2023 (the due date of the AP from which the loss derives). This is wrong, as the £2,000 was originally covered by the now-displaced IT set-off.
You could correct this by changing the EDP of the carry-back to 01/01/2021, but that would cause the computer to miscalculate repayment interest (RPI) on the CT repayment. It would add RPI from 01/01/2021 rather than 01/01/2023 because the repayment is made by reference to the carry-back posting.

You need to handle the interest position by:

• using function MAPS (Maintain AP Signals) to set the Clerical Interest Indicator (CII)
• using function RAMA (Record/Amend Assessment) to give effect to the claim by amending the assessment
• using function DIRR (Direct Repayment) to repay the CT overpayment and RPI (the computer will calculate RPI correctly, as you have not changed the EDP)

Use DSET to post £2,000 IT onto COTAX, using an EDP of 01/01/2023 (the effective date for repayment interest under s826 (7A)(c)), and then DIRR to repay. COTAX will calculate repayment interest from 01/01/2023 to the date of repayment.