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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: trade loss carry-back - leap year

When you allow relief for a trade loss against an AP falling wholly within the previous twelve months, there is normally no problem with late payment interest or repayment interest.

However, COTAX incorrectly charges late payment interest and restricts repayment interest in cases where:

  • the receiving AP is a 12 month AP and the donating AP is shorter than 12 months
  • the donating or the receiving AP straddles 29 February in a leap year.

Example 1

AP1 is for the period 1 January 2011 to 31 December 2011.

AP2 is for the period 1 January 2012 to 30 June 2012.

AP2 is shorter than 12 months and it straddles 29 February in a leap year.

Example 2

AP1 is for the period 1 April 2011 to 31 March 2012.

AP2 is for the period 1 April 2012to 31 December 2012.

AP2 is shorter than 12 months and AP1 straddles 29 February in a leap year.

In each example the loss is carried back no more than 12 months. Trade losses carried back no more than 12 months are fully effective in discharging liability for interest purposes.

COTAX incorrectly treats the loss as carried back for more than one year because of the presence of the extra day in a leap year and applies an incorrect effective date of payment (EDP (Word 41KB)) to the ‘LOS’ posting that it creates. It uses the due date of the AP of the loss instead of the AP in which relief is given.

When you use function RAMA (Record / Amend Assessment) to allow the loss relief, you need to alter the EDP shown in screen COT120M to the due date for the receiving AP.

See:

  • COM50131 for a list of functions to use in particular situations
  • COM50132 for legislation applying to this subject.