COM50010 - Claims / reliefs: loss and non-trading deficits carry-back: how COTAX treats carry-backs

The computer treats a carry-back of trade losses or non-trading deficits as if it was a payment made on an Effective Date of Payment (EDP (Word 41KB)). It does not treat it as a reduction in the charge.

Subject to some limitations, it calculates the EDP and computes interest accordingly, taking account of the rules in

• S87A(6) TMA 1970. For more information see subject ‘Loss Carry-Back / Late Payment Int’ (COM50020)
• 87A(4A) TMA 1970. For more information see subject ‘Non-Trade Deficit C/B & Late Payment Int’ (COM50030)
• S826(7A) ICTA 1988. For more information see subject ‘Loss Carry-Back / Repayment Int’ (COM50040)
• S826(7C) ICTA 1988. For more information see subject ‘Non-Trade Deficits C/B & Repayment Int’ (COM50050)

Note: The computer cannot take account of the special rules that apply when surplus ACT generated by the carry-back of a trading loss or a non-trading deficit, is itself carried back. The special rules are in

• S87A(7) TMA 1970. For more information see subject ‘ACT Carry-Back And Late Payment Interest’ (COM51020) in this business area
• S826(7AA) TMA 1970. For more information see subject ‘ACT Carry-Back And Repayment Interest’ (COM51030) in this business area

Postings following a loss carry-back

COTAX was designed to handle the interest provisions of loss and non-trading deficit carry-backs by

• Calculating the tax effect of the carry-back (‘LOS’ posting in Function VPPD (View Payment and Posting Details))
• Treating the tax effect of the carry-back as a payment made on the date on which the carry-back is effective for interest purposes. The computer records this date as the Effective Date of Payment (EDP) and applies it to the ‘LOS’ posting
• Reconciling the AP record by debiting to it an amendment or an assessment charge (‘ASA’ or ‘ASM’ in Function VPPD). This is equal to the amended charge plus the amount of the ‘LOS’ posting. (The ‘ASA’ or ‘ASM’ figure will be equal to the original charge before the carry-back was allowed)

The computer carries out the processing in the following order

• It calculates the CT liability without the loss relief
• It compares that liability with the amount of CT due in the amendment or assessment that you make
• It records the difference as a ‘LOS’ posting
• It calculates the amended assessment amount ‘ASA’ or the assessment amount ‘ASM’ by adding the amount of the ‘LOS’ posting to the actual amount of tax due on the amendment or the assessment

Example 1 (Word 36KB) illustrates the point.

Every amendment you make subsequently to the assessment will result in the reversal of those postings and the calculation of new ones.

In calculating the new postings the computer does not take account of any earlier

• Postings
• Repayments

Or

• Versions of the assessment

Because of this the computer will sometimes miscalculate the LOS posting unless you intervene.

Although the computer will, with your assistance, get the amount of the LOS posting right there are still occasions when it will not be able to cope with the interest consequences. For more information see subject ‘Getting The ‘LOS’ Posting Correct’ (COM50070) in this section.

For a list of functions to use in particular situations, see COM50011.

For legislation applying to this subject, see COM50012.