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HMRC internal manual

Self Assessment: the legal framework

Claims, Elections and Notices: claims given effect by a carry-back of a relief to an earlier year

Schedule 1B/Para 2(2)

The requirement to include a claim in a tax return does not apply where the claim is for a loss incurred (or treated as incurred), or a payment made, in one year of assessment to be given in an earlier year of assessment. For example, a carry back of relief for trading losses or qualifying pension payments.

This is because it is necessary to recognise that such a claim:

  • is established in one year (‘the later year’), but
  • is given effect by reference to the tax liability of a different year (‘the earlier year’).

In any such case the claimant has the flexibility to choose to wait to include the claim in the return for the later year, or to make an immediate claim through the Schedule 1A procedure. A claim made in ‘a later year’ does not interfere with the agreement of the liability of an earlier year, or extend the time limit for enquiries by ‘re-opening’ an earlier year. This maintains the principle that a tax return filed on the normal filing date for a year will become final within 12 months of that filing date (unless HMRC open an enquiry into the tax return), one of the underlying principles of Self Assessment.

All such claims are quantified by reference to the tax difference in ‘the earlier year’

Para 2(4)

The claim is quantified in terms of the tax difference in ‘the earlier year’. The tax ‘difference’ is the tax that would not have been due in ‘the earlier year’ if the claim could be and had been given effect to in relation to that ‘earlier year’.

Any such claim is to be given effect in ‘the later year’

Schedule 1B/Para 2(3) & (6)

However, the claim relates to the later year and is given effect in relation to ‘the later year’. This means that although the claim is quantified by reference to ‘the earlier year’ it is none the less a claim for the year in which the event occurs which gives rise to the relief (for example, the year in which the loss accrues or pension payments are made). The claim is given effect by repayment, set off or by increasing the aggregate amount of the payments on account and any income tax deducted at source. The claim does not revise or re-open the self assessment for ‘the earlier year’.

Repayment interest

ICTA88/S824(2C) & (3)(ab)

Whatever the means of giving effect to the claim, any repayment interest arising begins to run from the 31 January next following the year that is ‘the later year’.