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HMRC internal manual

Self Assessment Manual

From
HM Revenue & Customs
Updated
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Returns: individuals returns: prior year adjustments: individuals returns

In a Revenue Calculation case it will be necessary to calculate prior year adjustment claims to enable capture of the return to be completed. It is recommended that you use the SA Tax Calculator on the SEES menu to calculate the relief due, and that a copy of the computation is placed in the return for future reference.

When using function CAPTURE RETURN the computer will display error and warning messages to prompt you when to enter an amount.

The claims can be for the following

  • Relief now for Trading Losses
  • Loss carried back
  • To tax post cessation receipts as income of an earlier year
  • A negative adjustment for Farmer’s averaging or Literary / Artistic spreading
  • A positive adjustment for Farmer’s averaging or Literary / Artistic spreading

A claim can only be considered as valid if it is made within the time limits below

Tax Calculation Summary page TCS 2, boxes 13, 14 or 15 Entry Type of Claim Return Entries Time Limit
       
TCS 2 box 14 Post cessation receipts Additional information page Ai 1 boxes 14 and 15 Fixed filing date + 1 year
TCS 2 box 14 Farmers Averaging or Literary / Artistic Spreading    
(Increase in liability) Self-employment (full) page SEF 4 box 70, or Partnership (short) page SP 1 boxes 10 and 11, or Partnership (full) page SP 1 boxes 10 and 11 Fixed filing date + 1 year    
  TCS 2 box 15 Losses carry back Self-employment (short) page SES 2 box 31, or Self-employment (full) page SEF 4 box 77, or Lloyds Underwriters page LU 4 box 58, or Partnership (short) page SP 2 box 21, or Partnership (full) page FP 3 box 42, or UK property page UKP 1 box 17, or Capital Gains Summary page CG 1 boxes 11 and 13 Fixed filing date + 1 year
  TCS 2 box 15 Farmers Averaging or Literary / Artistic Spreading    
(decrease in liability) Self-employment (full) page SEF 4 box 70, or Partnership (short) page SP 1 boxes 10 and 11, or Partnership (full) page FP 1 boxes 10 and 11 Fixed filing date + 1 year    
  TCS 2 box 16 Losses brought back Other information section of Additional information page Ai 3, boxes 3 and 4 Fixed filing date + 2 years

Relief to carry back Losses, Farmers Averaging or Literary / Artistic Spreading to the previous year cannot be calculated until the return for the earlier year has been received. If the return for the earlier year is outstanding there must not be an entry in TCS 2 box 14. The case will need to be held on BF and the claim dealt with manually once the earlier years return is received.

A claim to carry back relief of one SA year to an earlier one gives rise to an overpayment or underpayment.

The adjustment is made in terms of tax and for interest purposes it increases or reduces the liability of the year in which the event occurs. The adjustment is calculated by reference to the taxpayer’s income and the rate of tax and allowances of the prior year.

When calculating the relief you should also take into 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 where there is a claim made for carry back of losses

If your calculation results in the claimant having no or insufficient income, then any surplus Married Couples Allowance or Blind Persons Allowance is available for transfer to the spouse or civil partner.

Farmer’s averaging or Literary / Artistic spreading

In a Revenue calculation case you must take account of the consequential impact on any RAR claim when dealing with the Farmer’s averaging or Literary / Artistic spreading claim where

  • Farmer’s averaging or Literary / Artistic spreading results in a reduction of the income level for the previous year

And 

  • A claim for Retirement Annuity relief made in the previous year would be affected by the reduction in the income level

In cases where the taxpayer has self calculated the relief due, any adjustment would need to be made by enquiry.

Trading losses

Claim for relief to be brought back to the return year

A self calculating taxpayer is required to enter the amount of their claim in TCS 2 box 16. In Revenue calculation cases you are required to calculate the amount from the information given on the return and enter the amount in TCS 2 box 16. The figure is entered during capture of the return details and the Freestanding Credit is automatically entered on the taxpayer’s record.

Before processing a claim for losses to be brought back you should check that the accounting period (AP) for the year of loss has finished or, where the basis period for the year of assessment includes more than one AP, that each of them has finished.

If the AP for the year of loss has not finished you should explain to the taxpayer / agent that the claim cannot be processed. You should invite them to write to you again when they can validly claim the loss.

Claim for relief to be carried back to an earlier year

Claims to carry back to an earlier year Loss relief may be made on the return or by letter. If a claim is made in advance of the return for the year in which the event occurred, some entries are required on the following return. Other claims must be made on the return.

A self calculating taxpayer is required to enter the amount of their claim in TCS 2 box 15. In Revenue calculation cases you are required to calculate the amount from the information given on the return and enter the amount in TCS 2 box 15. The figure is entered during capture of the return details and the Freestanding Credit is automatically entered on the taxpayer’s record.