SolvedCOM30102 | Claims/reliefs: loss and non-trading deficits carry-back: Examples
From HM Revenue & Customs · COTAX Manual
Example 1
First amendment
APE 31/03/2021
| CT Profit | 1,750,000 at 30% | £525,000 |
| Trade loss from APE 31/03/2022 | £50,000 - £75,000 | |
| Non-trading deficit from APE 31/03/2022 | £1,625,000 at 30% | £487,500 |
| Repayment made | £37,500 |
Second amendment
APE 31/03/2021
| As before | £1,625,000 at 30% | £487,500 |
| Trade loss from APE 31/03/2023 | 1,000,000 | |
| £625,000 at 30% | £187,500 | |
| MR | £165,625.00 | |
| Repayment made | £353,125.00 |
The order in which the computer calculates the tax effect of the losses for LOS posting purposes is governed by the order in which they are presented on screen CPF120M.
The computer will present the losses and non-trading-deficits in the following order.
| AP end date | Type | Order | Amount | Interest Effective Date |
|---|---|---|---|---|
| 31/03/22 | L | 1 | £50,000 | 01/01/22 |
| 31/03/22 | F | 2 | £75,000 | 01/01/23 |
| 31/03/23 | L | 3 | £1,000,000 | 01/01/24 |
In this example you will need to change the order in which the computer presents and therefore processes the losses. The trade loss carried back from APE 31/03/23 takes precedence over the non-trading deficit from APE 31/03/09.
You can do this using the order box on screen COT120M to change the number sequence to the order of processing that you wish to be applied. In this example you would change the numbers as follows;
| AP end date | Type | Order | Amount | Interest Effective Date |
|---|---|---|---|---|
| 31/03/22 | L | 1 | £50,000 | 01/01/22 |
| 31/03/22 | F | 3 | £75,000 | 01/01/23 |
| 31/03/23 | L | 2 | £1,000,000 | 01/01/24 |
The computer will calculate the tax effect of the losses in the correct statutory order giving the trade loss from the APE 31/03/23 precedence over the non-trading deficit from the APE 31/03/22.
Please note that: When a repayment is due it is important that you read the paragraph below.
Interest Effective Date
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.
In the example above, after the second amendment to the assessment the company will be entitled to a repayment of £321,875.00 with repayment interest running from 01/01/24 until the date when the repayment is made. The payment type postings after the last amendment will be
| PYT | 525,000 | Paid say 01/01/22 | |
|---|---|---|---|
| LOS | 15,000 | EDP 01/01/22 | 2022 trade loss |
| LOS | 22,500 | EDP 01/01/23 | 2022 non-trading deficit |
| LOS | 321,875 | EDP 01/01/24 | 2023 trade loss |
The subject ‘Getting The ‘LOS’ Posting Correct’ alerts you to the fact that the computer reverses all previous LOS postings and calculates new ones each time that an amendment is made to an assessment. Now that the order in which the losses have been processed has changed so has the tax effect.
Left to itself, the computer would repay £321,875 (the latest payment type posting) with repayment interest running from 01/01/24 until the date when the repayment is made. The balance of £170,000 would be repaid using the EDP of the next latest posting (£341,000) with repayment interest running from 01/10/06.
The company would lose out on repayment interest for the period from 01/10/06 to 01/10/10 on £162,500 of the repayment made. The full amount of the repayment arises because of the trade loss carried back from APE 31/12/08 that carried an EDP of 01/10/09.
When you want to prevent the computer from calculating late payment interest you set the Clerical Interest Indicator (CII). When the CII is set it also prevents any automatic repayment from being made.
It will not stop the computer from working out repayment interest, however. You, therefore, need to take the following action:
use function DAPD (Display Accounting Period Details) to check if CII is set
if the CII is not set on the AP
use function MRSA to set the Inhibit Repayments and Reallocations (Manual) signal for the AP before making or amending the assessment
use function REOD (Direct Reallocation Out of COTAX) to move the repayment into OAS
on the same day send form CT251 to HMRC Payments to ask for the repayment to be made out of OAS. Advise HMRC Payments of the amounts on which and the dates to which repayment interest is to be calculated