BIM75205 - Trade losses - claims to relief: Claims involving more than one year

Before the introduction of the current year basis of assessment, a claim to carry back losses to an earlier year meant that the assessment for that earlier year had to be reopened. This no longer is the case.

TMA70/SCH1B/PARA2 sets out the new rules. They apply where a person makes a claim requiring relief for a loss incurred in a later year to be given by reference to the tax payable in an earlier year. The claims involved are:

• Carry back of trade losses under ITA07/S64(2)(b) or S64(2)(c)
• Carry back of losses in the early years of a trade under ITA07/S72
• Terminal loss relief under ITA07/S89 (for years other than cessation).

TMA70/SCH1B/PARA2 (2) provides that these claims do not have to be made in a return. Thus they can be made as stand-alone claims. We take the view that such a claim can even be made before the return, for the year in which the loss arose, is submitted. For information on claims affecting two or more years see SACM11000 onwards.

Some claims must be made in a return, if possible, so the claim is reflected in the self assessment for the year. These are claims under:

• ITA07/S64(2)(a) to set losses against income of the same year, or
• ITA07/S83 to carry forward losses against subsequent profits of the same trade, or
• ITA07/S89 to set a terminal loss against profits of the trade of the year of discontinuance.

Claims under Sections 83 and 89 can be made up to 4 years after the end of the year of assessment to which the claim relates so it is not always possible to make these claims in a return. The return amendment window is likely to be closed before the claim time-limit expires. In these circumstances the claim is under the TMA70/SCH1A “stand-alone” procedures. For information on Sch1A and claims outside a return see SACM3030.