Reclaiming 2007/08 trading losses on 2007 SATR

Reclaiming 2007/08 trading losses on 2007 SATR

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I am about to (belatedly) submit a clients 2007 SATR.

He is self employed and his year end is 31st December. In the year to 31st December 2006 he made just under £50000 profit. However the year to 31st December 2007 has been disastrous and he believes he has lost approximately £60000. He has just passed me his records for 2007 but i will not have time to verify the loss figure this week.

Because the client has had a disastrous 2007, he doesnt have the funds available to settle the 2007 liability.

Although the loss figure has not been definitively calculated at this stage, I dont want the client to incur a 5% penalty for tax not paid by 29th February ( i presume there is an extra day granted in a leap year before the penalty is incurred?). As the losses, once calculated, will be carried back to set off against the 2007 liability, can i make an entry at Box 18.8 for "2007-08 tax that i am reclaiming now"?

Could somebody please confirm that this course of action is permissable?

If so, and that entry subsequently proves to be excessive as the losses were not as great as the client originally indicated i would intend to repair the 2007 return at box 18.8. Would the penalty be 5% plus interest on the shortfall in tax (as opposed to the entire 2007 liability less the rather insignificant POAs already made)?

Any assistance greatly appreciated. Thanks, Mark.
Mark

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By User deleted
26th Feb 2008 19:04

To summarise
Thanks to everybody that has responded.

To summarise, it is my understanding from the responses that in order to avoid the 5% surcharge on the tax liability arising from the December 06 profits, a claim to carry back the losses from the year ended 31 December 2007 needs to be submitted no later than 28 February 2008.

Furthermore, it is possible to submit that claim based on a provisional loss figure and that if the claim proves to be for more than the losses available (once that position has been established), presumably HMR&C will only charge the 5% penalty and interest on the difference between the two?

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By User deleted
26th Feb 2008 16:52

Surcharge is NOT reduced
This is a loss claim for the 2007/08 tax year. When "carried back" a refund is only made "by reference to the 2006/07 tax year". It does not reduce the tax liability itself for 2006/07.

Therefore, although the 2006/07 liability is in effect "paid" by the refund arising from the loss claim, the 06/07 liability itself still stands. If the loss claim is made after 28.2.08, then as the liability still stands, the surcharge, and any interest, is still payable. They do not get reduced.

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By barryhallam
26th Feb 2008 15:38

Be careful

AS the loss calim is one that involves more than one year i.e. 2007/08 and 2006/2007 the relief may be given be means of a free standing credit on the statement of account. The effective date of payment of that credit should be the date of the claim for the loss relief.

So, to ensure that the credit is taken as before 28 February, to avoid a surcharge, it would be prudent to submit a provisional loss relief claim (s64 ITA 2007) to the Revenue before 28 February. Ideally this should be signed by the client. There shouldn't be a problem provided the accounting period has ended - which it has.

Also remenber that the the carry back of the loss to 2006/07 does not reduce the POAs for 2007/2008 so a separate claim for this should be made as appropriate.

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By User deleted
26th Feb 2008 15:27

Thank-you
Thanks Euan. Your comments and advice have been taken on board and are greatly appreciated.

Best Wishes, Mark.

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Euan's picture
By Euan MacLennan
26th Feb 2008 14:45

28 days
S.59C(2) TMA 1970 states unambiguously that "Where any of the tax remains unpaid on the day following the expiry of 28 days from the due date, the taxpayer shall be liable to a surcharge equal to 5% of the unpaid tax." It is not expressed as the last day in February, so there is no extension in a leap year.

However, if a surcharge is originally based on the tax arising on profits of £50,000, it will be reduced to nil if no tax is eventually payable as a result of setting off the profit against losses carried back. The surcharge is based on the liability not already paid by 28th February, so it would be based on the entire 2006/07 tax liability, as determined when the 2007/08 losses have been finalised, less POAs, unless a further payment is made.

I think you can enter an estimated figure in box 18.8 for the tax relief on the losses to be carried back from 2007/08. You would also need to tick box 23.2 to say that the return includes provisional figures and box 23.3 to say that you are claiming relief now for 2007/08 trading losses and enter details as additional info in box 23.9. You would have to amend the return later for the exact trading loss.

On the other hand, what is the rush to submit the return by 28th February? It is already late, so why don't you save yourself the time and leave it until you have the exact trading loss for 2007/08 and can complete the return without estimates and hence, without subsequent amendment?

If after talking to the client, you have some grounds for believing that the losses might be less than £50,000, do an informal calculation of the 2006/07 net tax liability and tell the client to pay the difference by Thursday.

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