SolvedCH82332 | Penalties for Inaccuracies: Calculating the penalty: Losses impact on potential lost revenue calculation: Losses available Capital Gains Tax example
From HM Revenue & Customs · Compliance Handbook
You must check the date from which these rules apply for the tax or duty you are dealing with. See CH81011 for full details.
Deepak returns capital gains of £65,000 and notifies capital losses of £35,000 for 2010-11. He also has £25,000 unused allowable capital losses brought forward from earlier tax years. Deepak’s income uses up all his basic rate band so all gains (other than those qualifying for Business Asset Disposal Relief) are taxable at 28%.
| Gains | £65,000 | |
| Less current period losses | £35,000 | |
| Net gains | £30,000 | |
| Less losses brought forward | £19,900 | Losses carried forward £5,100 |
| £10,100 | ||
| Less annual exempt amount | £10,100 | |
| Chargeable to CGT | Nil |
The 2010-11 return is found to contain a careless inaccuracy in the calculation of the losses for the tax year. True allowable capital losses in the year are £13,000.
The potential lost revenue (PLR), assuming liability at 28% on his taxable amount, is
| Gains | £65,000 | |
| Less current period losses | £13,000 | |
| Net gains | £52,000 | |
| Less losses brought forward | £25,000 | Losses carried forward NIL |
| £27,000 | ||
| Less annual exempt amount | £10,100 | |
| Chargeable to CGT | £16,900 |
PLR is 16,900 x 28% = 4,732
The wrongly recorded current period loss has been wholly used by deduction from the gains so only the normal rule applies. No part of the wrongly recorded loss is unused so the 10% rule does not apply.