Claims involving two or more years: how relief is claimed and for what year
Throughout this manual legislative references are to the Taxes Management Act 1970 (TMA70), unless otherwise stated.
Claims should be made in writing and should state
- the year of the claim
- the amount of the loss or relief
- the year to which the loss is being carried back (for some claims, the legislation may dictate this).
It would help HMRC process the claim if it also stated the legislation under which it is being made.
To what year does the claim relate
Sch 1B Para 2(3) says that the claim shall relate to the later year and so the earlier year is unaffected.
Although the claim is quantified by reference to the earlier year, see SACM11015, it remains a claim for the later year as that is the year in which the event giving rise to the claim occurred. For example
Mary has a trading loss of £20,000 for the accounting period ended on 30 September 2005.
She wishes to carry back the loss, under ICTA88/S380, to the earlier year. The claim is for a 2005-06 loss as the loss arose in that year and it will be carried back to 2004-05.
This point was established in the case of Norton v Thompson (SpC399) where the taxpayer had contended that the claim had the effect of re-opening the earlier year and reducing the tax payable for the earlier year.
This means that the tax due for each year can be ascertained with certainty, on the basis of the events of that year, and is not contingent on later events arising in later years.
How can the claim be made
Where a notice to file a return has been issued for a year in question, claims normally have to be made
- in a return, or
- by an amendment to a return.
However, Sch 1B Para 2(2) lifts this restriction and the claim can be made in a return or outside a return where it affects more than one year. This usually allows the customer to make the claim at an early date and before the notice to file a return is issued for the relevant year.
If the claim is made early
The claim may be made early on the return form of the earlier year. Although made on the return form, the claim is a stand-alone claim and is not part of the self-assessment for the earlier year. This is because the claim relates to the later year. The Schedule 1A procedures apply to the claim.
The requirement for the claim to be included in the return for the later year
Irrespective of whether the claim is made in the earlier year, the claim should be included in the return for the later year, as this is the year to which the claim relates and forms part of the self-assessment for that year. Therefore the S9A enquiry procedures apply to the claim. The point was made in the case of R (on the application of De Silva and another) v Commissioners for Her Majesty’s Revenue & Customs  UKSC 74. In the case, HMRC successfully argued they were entitled to open a S9A enquiry into carry back claims for loss relief included within the taxpayer’s returns for the later year.
In his judgement, Lord Hodge commented
“If HMRC had already given effect to part of the claim under Schedule 1A in Year 1 by giving relief, for example by repayment, the return for Year 2 would still have to state the loss, the claim and the relief already given in order to establish the amounts in which the taxpayer is chargeable to income tax in Year 2. Similarly if the taxpayer had already received full relief under Schedule 1A in Year 1, he would have to state the same information as to the loss, the claims and the relief already given….In each case that information is necessary part of his return for Year 2 as it is information required “for the purpose of establishing the amounts” in which the taxpayer is chargeable to income tax for that year of assessment: section 8(1).”
Claim made in earlier year and then repeated in later year’s return
Follow SACM8015 for enquiry procedure guidance.
What if the claim is not included in the later year’s return
S9A(4) & S12AC(4) states an enquiry extends to anything contained in a return or anything required to be contained in a return, including any claim or election included in return. See SACM8015 for enquiry procedures.