COM50001 - Claims / reliefs: loss and non-trading deficits carry-back: introduction
This guidance is mainly for Inspectors in District Offices. Staff in Recovery and Accounts Offices may find some of the information and examples of interest.
Legal background
Under S393A ICTA 1988 a company may claim to carry back trade losses against profits of the three previous years, apportioning profits of an AP where necessary.
S393 was amended by S39 F2A 1997. For losses arising on or after 2 July 1997 a company may only claim to carry back trade losses against profits of the preceding 12 months unless it is a terminal loss.
Under S83(2) FA 1996 a company may claim to carry back a non-trading deficit against profits of the three previous years apportioning profits of an AP where necessary.
S83(2) was amended by S40(2) F2A 1997. For deficits arising on loan relationships on or after 2 July 1997 a company may only claim to carry back a deficit against profits of the preceding 12 months.
The new legislation will restrict the carry back of companies’ trading losses and non-trading deficits dealt with under the loan relationship rules. In general, losses and deficits will only be carried back for one year rather than three. A three year carry back will still be allowed for trading losses incurred in the final year of trading.
A trading loss carried back to an AP falling wholly within the previous 12 months is interest effective for the AP to which it is carried back. A non-trading deficit, however, is only interest effective from the due date of the AP from which the deficit is carried back.
Interest consequences
For APs ending after 30 September 1993
- Subsections (6) of S87A TMA 1970 and (7A) of S826 ICTA 1988 deal with the interest provisions when there is a carry-back of trade losses to an AP ending more than 12 months earlier than the AP in which the losses arise
- Subsections (4A) of S87A TMA 1970 and (7C) of S826 ICTA 1988 deal with the interest provisions relating to the carry-back of non-trading deficits
The effect of the provisions is to
- Charge interest on any unpaid liability that is satisfied by the carry-back, for the period up to the CT due date for the AP in which the loss is incurred
- Deny repayment interest on any overpayment caused by the carry-back, for any period prior to the CT due date for the AP in which the loss is incurred
Computer support
The computer can calculate the interest consequences of a carry- back automatically, taking account of these rules, except where
- A repayment or reallocation has previously been made for the AP as a result of a carry-back
- The carry-back claim results in the displacement of another relief or set-off that would have been given if the claim had not been made
- The carry-back is of surplus ACT some or all of which has become surplus only because of the carry-back of a trading loss from a still later AP
- The amount of the carry-back is subsequently amended
- The carry-back of a loss or non-trading deficit reduces the rate of liability from the full CT rate with MSCR to the small companies’ rate
- There is a loss or a non-trading deficit carry-back and you have overwritten the computer-calculated MSCR figure
- There is more than one loss or non-trading deficit carried back to the AP and you need to alter the computer default order of processing the losses or deficits
Inspector action
Inspectors must intervene in these exceptional cases because they are responsible for making sure that any interest will be correctly calculated, and for making any repayments that the computer will not make automatically.
The Accounts Office is responsible for calculating and charging any interest the computer cannot handle automatically, but they are dependent on you to pass on relevant information, using form CT250(P).
