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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: order of loss processing

When more than one loss or non-trading deficit is carried back to an AP and the interest effective date for one loss is different from that of another, it is important that the correct tax effect is calculated for each loss or deficit.

The Company Tax Manual at CTM04505 and the Corporate Finance Manual at CFM32070 set out the rules of precedence for the carry-back of trade losses and non-trading deficits.

Remember that when you amend an assessment to give a new or additional carry-back relief, COTAX reverses all the existing postings and calculates new ones.

To do this, it has a default order for processing carry-backs. That order usually corresponds with the statutory provisions but there will be cases in which it does not. You therefore need to be aware of the COTAX default order and of how you should intervene to change it.

COTAX default order for processing losses carried back

COTAX labels a trade loss ‘L’ and a non-trading deficit ‘F’ and these are shown on screen COT120M in function RAMA (Record / Amend Assessment).

When more than one loss or non-trading deficit is carried-back to an AP, they are presented to you in screen COT120M with the earliest AP at the top of the list and the latest at the bottom. When there is both a trade loss and a non-trading deficit carried back from the same AP, COTAX shows the trade loss first.

The order of presentation of losses does not always correspond with the normal rules of precedence. The COTAX order is:

  • losses from an earlier AP have precedence over losses from a later AP
  • when both a trade loss and a non-trading deficit are carried back from the same AP, the trade loss has precedence.

The losses are numbered in screen COT120M in the order of precedence COTAX has given them. If you need to change the order of precedence, change the numbers to make COTAX process them in the correct order.

Repayment interest

If the allowance of the losses leads to an overpayment, COTAX always looks to repay by reference to the latest payment type posting first. When the order of priority of losses is altered, this causes a problem. See Example 1 (Word 74KB).

When you want to prevent COTAX calculating late payment interest, you set the clerical interest indicator (CII (Word 32KB)). Although setting CII also prevents any automatic repayment being made, it does not stop COTAX working out repayment interest.

If calculating repayment interest by reference to the EDP (Word 41KB) of the latest payment type posting would produce the wrong result, you need to move the repayment to OAS and ask the CT Unit Cumbernauld to make the repayment and add the correct amount of repayment interest.

See:

  • COM50101 for a list of forms relevant to this subject
  • COM50102 for a list of functions to use in particular situations.