COM50100 - Claims / reliefs: loss and non-trading deficits carry-back: order of loss processing
When more than one loss or non-trading deficit is carried back to an AP and the interest effective date for one loss is different from that of another it is important that the correct tax effect is calculated for each loss or deficit.
The Company Tax (CT) Manual at CT10223 sets out the rules of precedence for the carry-back of trade losses and non-trading deficits. See also CT12828
Remember that when you amend an assessment to give a new or additional carry-back relief the computer will reverse all the existing postings and calculate new ones.
In order to do this it has a ‘default order’ for processing carry-backs programmed into it. That order will usually correspond with the statutory provisions but there will be cases in which it will not do so. You, therefore, need to be aware of the computer’s default order and of how you should intervene when you need to set a different order.
The computer ‘default order’ for processing losses carried back
The computer labels a trade loss ‘L’ and a non-trading deficit ‘F’ and these are shown in the penultimate assessing screen COT120M in Function RAMA (Record / Amend Assessment), PAST (Prepare Full Assessment) or PASR (Prepare Assessment Based On Return).
When more than one loss or non-trading deficit is carried-back to an AP they are presented to you in screen COT120M with the earliest AP at the top of the list and the latest at the bottom. When there is both a trade loss and a non-trading deficit carried back from the same AP the computer will show the trade loss first.
The order of presentation of losses does not always correspond with the normal rules of precedence, the computer order is
- Losses from an earlier AP have precedence over losses from a later AP
- When both a trade loss and a non-trading deficit are carried back from the same AP, the trade loss has precedence
The losses are numbered in screen COT120M in the order of precedence they have been given. If you need to change the order of precedence, change the numbers to make the computer process them in the correct order.
Repayment Interest
If the allowance of the losses leads to an overpayment the computer will always look to repay by reference to the latest payment type posting first. When the order of priority of losses is altered this will present a problem. See Example 1 (Word 74KB).
When you want to prevent the computer from calculating late payment interest (Word 27KB) you set the Clerical Interest Indicator (CII (Word 32KB)). Although setting the CII also prevents any automatic repayment from being made it will not stop the computer from working out repayment interest (Word 29KB).
If calculating repayment interest by reference to the EDP (Word 41KB) of the latest payment type posting would produce the wrong result you will need to move the repayment to OAS (Word 28KB). You will need to ask the Accounts Office to make the repayment and add the correct amount of repayment interest.
For a list of forms relevant to this subject, see COM50101.
For a list of functions to use in particular situations, see COM50102.
