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Losses carried back (to previous year)

What's the correct procedure? Does this work (see content)?

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My client made a small loss in his business in 2021/22 and wishes to set this loss back to 2020/21.  The HMRC instructions as I understand them are twofold:

1 Insert the amount of the loss in Box 34 on the Self-employment (short) page of the Return, and

2. Make a note in “Other information” on page TR7 of the tax return that the loss carried back is to be set fully against the 2020/21 income.

Elsewhere, in addition it’s recommended to write to HMRC (1) – “just to make sure”(?).

My problem with this is that (a) apparently, HMRC rarely if ever view/action anything written in the “Other information” boxes, and even if the completion of box 34 (see “1” above) automatically flags up that the “other information” should be looked at, one wonders when this would be (immediately, or in six months’ time, perhaps?), and (b) writing to HMRC usually takes well over six months for any response from them these days (or years, even…).

To hurry things up to the usual time-frame (ie obtaining a refund, usually within a week or so from submitting a Return), it appears to me that the best thing to do would be to submit a revised 2020/21 Return along with an appropriate adjustment (eg increasing expenses by the amount of the loan carried back), together with a full explanation in “Other information”, followed by the 2021/22 Return, with Box 34 completed as in “1” above, plus an explanation as in “2” above.

Would this be OK?  It’s not “illegal” to do this, is it?

How do other readers deal with self-employed losses carried back, and, without submitting a revised 2020/21 Return, how long does it normally take to obtain a refund/credit for the earlier year?

Many thanks    

Replies (10)

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RLI
By lionofludesch
11th May 2022 16:35

You'd be wasting your time. A loss carried back shouldn't reduce the prior year's liability. Instead, it should create a stand-alone credit on the taxpayer's statement of account.

I've always sent a letter to flag up the issue. If you feel you need to speed things up, I suppose you could ring HMRC but allow time for the return to be captured before you do that.

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By songb1rd
11th May 2022 17:01

Ah, good, Lionfludesch. That'll sort it. Many thanks.

By the way, I've wondered for a while, from whence is your name derived?

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Replying to songb1rd:
RLI
By lionofludesch
11th May 2022 17:26

songb1rd wrote:

Ah, good, Lionfludesch. That'll sort it. Many thanks.

By the way, I've wondered for a while, from whence is your name derived?

It's a closely guarded secret.

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Replying to lionofludesch:
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By Hugo Fair
11th May 2022 19:37

Richard Pepper from Wakefield, known as the Lion of Ludesch after twice scoring England's winning goal in tournaments in Austria?
extracted from ... https://subbuteoforum.org.uk/viewtopic.php?t=8404

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Replying to Hugo Fair:
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By songb1rd
11th May 2022 20:03

Well I never, Hugo - and note that Lionofludesch is a Grandmaster too!

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Replying to Hugo Fair:
RLI
By lionofludesch
12th May 2022 06:49

What rubbish. I've never lived in Wakefield.

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Replying to Hugo Fair:
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By Hugh Simpson
12th May 2022 08:29

[chuckle?]

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By rmillaree
11th May 2022 17:49

Presuming you want to claim via self assessment return (should be quickest option if you file online)

I think you are missing the fact that you are meant to do the specific calculations of tax being refunded now with regard to earlier year (diff between tax factoring in loss and original calc) AND include that calculated sum in the following box - this will do the specific "request to get repaid x amount now"!

"decrease in tax due because of adjustment to an earlier year’ box (if you file online)"

As confirmed in the losses helpsheet HS227 - its unhelpful this fact may not be made clear elsewhere. If claim is via sa return hmrc will not process refund without this box being complete to the best of my knowledge.

https://www.gov.uk/government/publications/losses-hs227-self-assessment-...

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By songb1rd
11th May 2022 18:16

Thank you Rmillaree, you've saved my life:-)

To Lionofludesch - Awgh, go on, give us a clue...

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By More unearned luck
11th May 2022 18:47

Well your problem is that you are only doing half the job. The procedure is:
1) put the amount c/back in box 34 (as you have done).
2) work out by how much the py year's income tax, NIC etc will reduce (you can do this on the back of a fag packet if you wish as there is no requirement to show HMRC your workings, but I recommend that you use your tax software).
3) Put the result of the sums conducted at stage 2 in box 15 on page TC2.
4) give an explanation in the white space.

Note the current year's SA doesn't change if you carry the loss back or forward, but would change if you carried it sideways.

If you file electronically, HMRC's computer will pick up and act on the figure in box 15 before your letter is read by HMRC and will commence the process of generating the free-standing credit referred to above. As with tax returns (box 15 doesn't form part of the return per the SC in Cotter) the procedure for claims is the process now check later one, although if HMRC open an enquiry quickly enough they can withhold repayment until the enquiry is completed.

NB if you are setting losses against non-trading income, eg rents, then those losses are still available for class 4 NIC relief and so IT losses carried forward and NIC losses c/fwd could be different amounts.

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