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HMRC internal manual

Self Assessment Manual

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HM Revenue & Customs
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Repayments: claims made outside a return: claims: carry back of losses / pension contributions

Claims to carry back losses or pension contributions are established in the later year, that is the year in which the loss is incurred or contribution is made, but the relief due is calculated by reference to the tax liability of the earlier year, that is the year to which the loss or contribution is ‘carried back’. It is as if the amount claimed could be carried back and included in the self assessment for that year but the actual self assessment for the earlier year is not revised at all.

The claim can be made as soon as the pension contribution has been paid or the size of the loss is known. The claimant can either make an immediate ‘stand alone’ claim or choose to wait and include the claim in the return for the later year (Carry Back claim). The claim can also be included in the return for the earlier year (Brought Back claim). See below for time limits for making claims.

Note: In partnership cases, each individual partner must make a personal claim to carry back pension contributions or their share of any partnership loss. The nominated partner cannot make the claim in their behalf.

Documentary evidence in support of the claim, such as accounts in support of a loss relief claim or a certificate in support of a claim to relief in respect of pension contributions, should not be requested unless you open an enquiry into the claim.

Claims to carry back losses or pension contributions do not disturb the self assessment for the earlier year or extend the time limit for enquiries by re-opening the earlier year. Neither does the claim disturb any surcharge and/or penalty charged in that earlier year because the return for the earlier year has not been amended.

For example, where the claim reduces the liability for year one to nil or to less than £100, any penalty charged for that year is not ‘capped’ to the reduced amount nor is the surcharge reduced to nil. Note: The practice of ‘capping’ penalties ceased for years 2010-2011 onwards.

The taxpayer can still make or revise claims for the earlier year as a consequence of, for example, a loss in the later year as they could do prior to SA. Such claims do not form part of the self assessment for the later year, even though we allow a taxpayer for convenience to include their Schedule 1B claim within the return.

Time limit for making claims

Carry back of pension contributions

  • Personal Pension Relief (PPR) 

    • The election to carry back personal pension contributions must be made to the Pension Scheme Administrator before or at the time of payment, but no later than 31 January of the tax year when the contributions were actually paid.

    For example, an election to carry back personal pension contributions paid in 2003-04 to 2002-03 must be made to the Pension Scheme Administrator no later than 31 January 2004

    (The option to carry back pension contributions does not apply to contributions paid in 2006-2007 and subsequent years)

  • Retirement Annuity Relief (RAR) 

    • The election to carry back pension premiums must be made to HMRC no later than the fixed filing date of the later year’s return

    For example, an election to carry back pension premiums from 2003-04 to 2002-03 must be made to HMRC no later than 31 January 2005

  • Carry back of loss relief 

    • The claim can be made at any time on or before 31 January twelve months after the statutory filing date for the return of the later year

    For example, a claim to carry back a 1998-99 loss to 1997-98 must be made on or before 31 January 2001

Further information relating to time limits for making claims is provided in subject ‘Claims: Time limits for claims and amendments to claims’ (SAM114080).

Calculation of relief

The amount of relief is calculated as the difference between the actual tax liability for the earlier year and the liability which would have arisen for the earlier year if the loss or pension contribution had been included in the return for that year. Where no return was issued for the earlier year the claim is quantified in terms of the tax that would not have been due if a self assessment containing the claim had been made for the earlier year.

Although the relief is calculated by reference to tax of the earlier year, it is a claim of the later year. This means that any repayment supplement arising on the relief will be calculated by reference to the fixed filing date of the later year. 

The amount of relief due cannot be calculated until the return for the earlier year has been received. This means that, until the return for the earlier year has been filed, you cannot deal with a claim to carry back relief. If you receive a claim before the return for the earlier year has been received you should

  • Retain the claim in the taxpayer’s file and place the file on special b/f
  • Write to the taxpayer / agent pointing out that the claim cannot be processed until the return for the earlier year has been received
  • Treat the claim as validly made on the date it is received

Relief should be given as soon as both the earlier years return and a valid claim are received, by set-off or repayment, subject to the following rules

  • There can be no repayment of tax if any of the tax of the earlier year is unpaid (whether because payment is late or because the due date for payment has not yet passed)
  • Where liability for any year is outstanding (or will become due within 45 days of the claim) relief will be given by set-off
  • Where there are no outstanding liabilities (or any becoming due within 45 days), relief will be given by repayment

Note: Where no liabilities are outstanding but there is an amount becoming due within 45 days and the taxpayer insists on repayment as opposed to set off, the repayment can be made on condition that it is repaid before the due date of the future liability.

When calculating the relief due, you should also take in to account

  • Additional income related allowances arising from the recalculation of the claimants income
  • Any reduction of Net Relevant Earnings for the purpose of RAR/PPR in claims for carry back of losses

Any personal pension contributions that no longer qualify for tax relief should be notified to FICO in accordance with RE294.

If your calculations result in the claimant having no or insufficient income, then any surplus MCA (Married Couple’s Allowance) or BPA (Blind Person’s Allowance) is available for transfer to the spouse.

Examples of giving effect to carry back relief are available at SAM114012.

Relief given by set-off / repayment

For claims made outside a return (which for this purpose includes claims within amended returns or within returns for 2000-2001 or earlier) whether relief is to be given by set-off or repayment, the clerical SA function CREATE FREESTANDING CREDIT will be used to enter a credit on the SA record.

Note: Freestanding Credits will be created automatically by the SA system for Schedule 1B Carry Back claims within an individuals’ 1st version of their Return for 2001-2002 and later years.

Following the use of this function

  • A credit will be created on the SA record which will be available for repayment or allocation against an SA charge.

Note: Care should be taken in cases where the second payment on account for the earlier year remains outstanding and there is a balancing charge due or becoming due. As the credit must cover the balancing charge first you may need to B/F the case and write to advise the taxpayer to make the necessary payment on account

  • A work item will be created and entered on the ‘Freestanding Credit Review’ work list
  • The ‘No Repayment’ signal will be set automatically for Freestanding Credits created manually. (The setting of this signal will prevent an automatic repayment and possible over-repayment being made when the return is received). However, there is no requirement for the SA system to set the ‘No Repayment’ signal where the Freestanding Credit is created automatically
  • You will be taken to function VIEW STATEMENT, from which you may want to access function ISSUE REPAYMENT FROM OVERPAID BALANCE. If repayment is not appropriate, you should exit that function
  • You should use SA function MAINTAIN SA NOTES to enter a brief note recording the fact that a repayment / set-off has been made

More detailed advice on creating a freestanding credit is provided in subject ‘Freestanding Credits’ (SAM110080).

The EDP attaching to the credit for a set off will be the date the taxpayer made the valid claim to the relief or the due date of the charge against which the relief is to be set, whichever is the later.

For repayments, the EDP of the credit will be the statutory filing date of the later years’ return. Note: Freestanding Credits created automatically will show EDP of the date of the claim. RPS will be payable from the fixed filing date of the later years’ return.

Examples involving the creation of freestanding credits can be found in subject ‘Automatic Freestanding Credits’ (SAM110010). Detailed advice on creating a manual freestanding credit is provided in subject ‘Freestanding Credits’ (SAM110080).

Relief claimed on return

Where an individuals’ first version of their return for 2001-2002 or later includes a Schedule 1B Carry Back claim, the computer system will automatically create Freestanding Credits (based on the information captured from boxes 18.5 and / or 18.8). These will appear on the record the next working day and will be allocated against any appropriate SA charge.

Where repayment is claimed, this will be automatically repaid along with RPS where appropriate, subject to the usual automatic repayment rules.

For claims made within returns for 2000-2001 or earlier, or for new / adjusted claims made within amended returns, the claim should continue to be dealt with manually. Relief should be given by set-off or repayment after the return is captured.

Payments on account

Carry-back relief does not amend the self assessment for either the earlier or the later years. It has no effect on the payments on account for subsequent years. As a result there can be no valid claim to reduce payments on account for either year in anticipation of making a carry-back claim.