COM50070 - Claims / reliefs: loss and non-trading deficits carry-back: getting the ‘LOS’ posting correct

The computer, left to itself, will calculate the loss posting (LOS) using only the Small Companies’ rate of tax when the tax effect of the carry-back is to change the rate of liability from the

• Full CT rate with Marginal Small Companies’ Relief (MSCR)

To

• Small Companies’ rate

When the computer-calculated liability before or after giving effect to the carry-back involves MSCR and

• You overwrite the computer’s calculation of MSCR, the computer will use your MSCR figure when calculating the ‘LOS’ posting
• You overwrite the computer-calculated MSCR figure to NIL, the computer will calculate the ‘LOS’ posting using the full CT rate and will not calculate any MSCR if either of the following is shown in the assessing screen COT120F

• An amount of Franked Investment Income (FII)

Or

• A number of associated companies

Note: It is not good practice to overwrite computer generated figures. The computer calculates the rate of tax applicable and MSCR, if appropriate, for an assessment using the information it carries forward from the return. It also takes account of any amendments that you make in the assessing screen.

Amongst the information gathered from the return is the number of associated companies, and the amount of Foreign Income Dividends and Franked Investment Income. You can alter these details in screen COT120F if they are incorrect.

Armed with the correct information the computer will calculate the correct amount of tax, at the correct rate, with MSCR if appropriate. It cannot do this if tax is chargeable at a special rate or the company is otherwise not entitled to claim the benefit of the small company provisions.

When you give relief for a carry-back claim it will usually result in an overpayment of tax. The carry-back may, however, meet an unpaid liability. In either event it is essential that the computer produces the correct amount of loss posting if the interest (repayment or late payment) is to be calculated correctly.

Example 1 (Word 45KB) and Example 2 (Word 50KB) deal with a repayment situation and Example 3 (Word 50KB) with a case where the tax was unpaid before the carry-back claim was effected.

For a list of functions to use in particular situations, see COM50071.