UK and International Tax news

Upper Tribunal Decision In Loss Carry Back Case

Sunday 15th May 2022

The Upper Tribunal has recently published its decision in a case involving the consequences of a corporation tax carry back claim when the profits of an earlier year are subsequently increased following an enquiry.

In the combined case of Peter Lowe and Civic Environmental Systems Ltd v HMRC (UT/2021/000037), the appellants appealed against a decision of the FTT which dealt with a number of disputes with HMRC. One of these disputes related to the extent to which the Appellant (CES) was entitled to carry back a loss arising in its 2008 accounting period against profits, increased by the FTT’s decision, of its previous 2007 accounting period.

CES had made a loss in its 2008 accounting period and at the date CES submitted its return for that period, it thought that taxable profits of its 2007 accounting period were £142,039. CES therefore claimed to carry back £142,039 of its loss against profits of the 2007 period and to carry forward the balance of its loss (£302,709) against profits of subsequent periods.

CES made its claim to carry back its loss for the 2008 period after 30 April 2009 which was after the deadline on which CES could apply to amend its return for its 2007 period. By making the carry-forward claim, CES had received and retained relief for £302,709 of losses by way of reducing taxable profits in subsequent accounting periods. The FTT subsequently decided, after CES made its carry back claim, that its trading profit for its 2007 accounting period should be increased by £540,000.

CES argued that, having increased profits of the 2007 period by £540,000, the FTT was obliged to decrease those profits by £302,709, being the balance of the losses for the 2008 period that had not already been carried back. HMRC, however, argued that at the time CES claimed to carry back its loss, the time limit for amending its return for the 2007 period had expired.  The FTT agreed with HMRC.

The UT also agreed with HMRC and held that effectively that it could not ignore the clear time limits Sch 1A TMA70.

Although arguable, the taxpayer could consider an appeal in this case given in particular the loss carry back claim under s.393A is an all or nothing claim. As there was no requirement to quantify the amount of the loss to be carried back from 2008 to 2007, any adjustment to the taxable profits of 2007 should have resulted in an amended 2008 carry back claim.

If you would like further information on this case, please contact Keith Rushen on 0207 486 2378.

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