Hi all, I'm slightly confused with a client's repayment!
The client made a loss in 2009. This loss was carried back against 2008 and reduced the 2008 liability to Nil. Client had not paid the 2008 liability in full and so surcharges and interest were added to the account.
When the 2009 return was submitted, we included the loss relief and included the tax relief as an adjustment "tax overpaid from prior year" on the calculation.
The loss reliefs have been processed but when I look at the account, the surcharges and interest have not been cancelled and therefore the client has received a lower repayment than expected.
Is this correct? Should the loss reliefs have wiped out the surcharges and interest also??
Replies (2)
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Surcharges and interest stay
The loss relief is given effect in the later year - the year of the loss or the year of claim; the actual relief is calculated by reference to the earlier year's tax liability, but is not a repayment or a cancellation of that earlier year's liability, so I'm afraid that any interest and surcharges are still due, as the tax for the earlier year is still due too. You just get a credit in the later year equal to the earlier year's tax.
This came in when self assessment came in, as it is the only effective way to sort out issues with carry back in cases where the earlier year is already closed. I'm sure that the fact that it also saved interest on repayments didn't harm the Government either! Don't forget in National Budgetary terms, that earlier tax revenue has been collected and spent, so seeing it as a reduction in the later year's liability is really the only way.
With hindsight - no use to you but might help someone here - applying for time to pay on the basis that losses will be carried back later would eliminate the surcharges at least - but not the interest.