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Lloyd's loss claims: revised Revenue view
Lloyd's loss claims: revised Revenue view
On 19 December 2001 Lloyd's issued a market bulletin which detailed procedures by which underwriters could make early loss relief claims in relation to the 1998 and 1999 years of account. The bulletin announced that the Revenue would accept provisional claims for carryback of estimated losses for 2001-02 (1998 account results) against income and gains of 2000-01, for which self-assessment returns were due for filing on or before 31 January 2002. For a loss arising on the 1999 account (a 2002-03 loss) a carryback claim for a provisional estimate of the loss could be made for set off against income and gains of 2001-02; it would be permissible for the estimated figure to be notified to the Revenue and provided that this took place before 31 January 2002 it should be possible for the 2001-02 pay-as-you-earn code to be amended to allow immediate relief for the loss. Failing this, provisional relief for the loss against income of 2001-02 would be allowed when the 2001-02 self-assessment return is filed, by means of entries in boxes 23.3 and 23.4 together with details in the additional information space.
Since the issue of that bulletin, which was agreed with the Inland Revenue, the Revenue has come to the conclusion that its interpretation of the loss relief provisions was incorrect. The new interpretation will be applied to losses of the underwriting year 2000, year of assessment 2003-04, and subsequent years. The text of the Revenue statement on this matter is as follows:
'The principal governing recognition of losses is that a loss is sustained or incurred for income tax purposes in the same way and at the same time as a profit is recognised. Therefore, in the absence of any specific legislation directing otherwise, neither a profit nor a loss can be recognised before an accounting period or year of assessment has ended. This principle governs both the time at which a profit can be charged to tax and the time at which the tax system can take a loss into account.
'The taxable results of individual members of Lloyd's are determined by the profits or losses that are allocated to what tax legislation calls the "corresponding underwriting year". For 2000 year of account syndicate results this is the calendar year 2003. In that corresponding underwriting year, the members' taxable result will be the sum of (a) the 2000 year of account syndicate results declared in 2003; (b) the movement on earlier years' run-offs in 2002 declared in 2003; and (c) personal income and expenses of the calendar year 2003.
'This aggregate result is the taxable profit or loss of the income tax year 2003-04. This result can neither be charged to tax nor relieved as a loss until the "corresponding underwriting year" has elapsed. This means that the earliest date on which loss claims can be processed relating to the 2000 year of account will be 1 January 2004.'
This means that loss claims for the 2000 year of account can only be made after 31 December 2003, when if action is taken quick enough, the pay-as-you-earn code for 2003-04 may be amended to allow relief. Otherwise, carryback claims to 2002-03 will only be available by way of tax repayment upon a claim being made early in 2004.
The Revenue has agreed to honour the terms of the 19 December 2001 Lloyd's bulletin in relation to losses of the 1998 and 1999 years of account. Accordingly claims to carry back a 1998 Account loss against income of 2000-01 will be repaid in advance of filing the 2001-02 tax return provided the 2000-01 return has been submitted. The claim should be made by letter enclosing the consolidated personal account at 31 December 2000, relevant details of the loss claimed and the tax repayment due.
Estimated losses of the 1999 account may be carried back to 2001-02 when the return for that year is filed.
(Source: Lloyd's Market Bulletin dated 14 May 2002.)
