Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

BPT > 03. BPT - Corporation tax losses > Flashcards

03. BPT - Corporation tax losses Flashcards

1
Q

When does trading losses arise?

A

When tax adj profit after CA = -ve

Trade income assessment in TC will be NIL

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

How does a trading loss show on CT?

A

Trade income assessment in TC will be NIL

i.e. will never be included as -ve

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is the first way that should be considered for loss relief?

A

CURRENT YEAR AND CARRY BACK 12 MONTHS

Note: no changes were made to this method in 1 April 17 (both before and after loss rules must be considered in this exam)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

How does the ‘current year and carry back 12m’ loss relief work?

A
  • Offset against total profits (pre QCD)
  • Options are current year only, or current year then carry back 12m
  • Claim is required within 2 years of the end of the loss making period
  • Partial claims now allowed so QCDs may be wasted
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

How is the current year and carry back 12m loss relief affected by a short acc period?

A

Under s37, loss can be carried back 12m

  • There will be more than 1 acc period in 12m before start of loss making oeruid
  • In this case, relief is carried back on LIFO basis
  • profits of acc period that falls partly into carry back period must be time apportioned
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

How does relief for carry forward of post 1 April 17 trading losses work?

A
  • Unused trading losses can be carried forward and offset against total profits (as long as trade continues and wasn’t small/negligible in previous periods)
  • Loss relief NOT automatic. Claim can be made to specify the amount of loss to offset in a year: NOT all or nothing claim
  • Make claim within 2 years of end of AP in which loss is relieved
  • If trade doesn’t continue on commercial basis in period or relief, or was small/negligible in previous period, then losses can only be used in same was as pre 1 April losses
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What must be done if relief for carry forward straddles 1 April 2017?

A

Loss should be time apportioned and old and new rules should be applied to relevant number of months accordingly

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

How is carry back loss relief affected if the losses are in the last 12m of trading?

A
  • If a loss arises in last 12m of trade, then carry back period is extending to prevent 36m rather than just 12
  • When counting back 36m, start from beginning of acc period in which the relevant part of loss was made
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Describe carried forward losses - terminal loss relief

A
  • Trading losses carried forward to period of cessation but to relieved can be carried back 3yrs from end of period of cessation (NOT 3yrs prior to start of AP as with normal terminal loss relief)
  • Cfwd loss can be offset against
    > TRADING prof if loss arose pre 1 April 17
    > TOTAL prof if loss arose post 1 April 17
  • Relief only available against periods beginning on/after 1 April 17
  • If acc period straddles 1 Apr 17, treated as 2 sep acc periods and prof calc’ed on time-apportioned basis
  • Relief only avail in periods after loss making period (i.e.not period of loss or earlier)
  • If claim is made, must use as much as poss on LIFO basis. Restriction on relief of cfwd losses doesn’t apply for losses relieved this way
  • Claim must be made 2yrs from end of period of cessation
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Summarise non-trade losses for Property

A

Current year: Against total profits
Carry forward (pre 1 Apr 17) : Against total profits
Carry forward (post 1 April 17) : Against total profits
Carry back: NA

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Summarise non-trade losses for Capital

A

Current year: Against gains only
Carry forward (pre 1 Apr 17) : Against gains only
Carry forward (post 1 April 17): Against gains only
Carry back: NA

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Summarise non-trade losses for
NTLR
Property
Capital

A

NTLR
Current year: Against any profits
Carry forward (pre 1 Apr 17) Against non-trade profits
Carry forward (post 1 April 17)Agaist total profits
Carry back: Against NTLR surplus only

Property = against total profits always (but can’t carry back)

Capital = always against gains (but can’t carry back)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What 2 factors influence the choice of loss relief?

A

TIMING

  • CY saves tax now
  • PY generates a tax repayment
  • CF have to wait for tax saving and future profits are uncertain

AMOUNT

  • Avoid wasting QCDs
  • Unrelieved QCDs can’t be cfwd against future profits, therefore certain claims for loss relief may lead to relief for QCDs being wasted
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

How does timing affect the choice of loss relief?

A

TIMING

  • CY saves tax now
  • PY generates a tax repayment
  • CF have to wait for tax saving and future profits are uncertain
  • Comps usually pref to obtain relief ASAP by carrying back. Generates tax repayment and helps cash flow. (But remember comp can only carry back after doing current year claim)
  • But must also consider the risk of wasting QCD. S37 relief is done before deduction of QCD (solution is to carry forward after 1 April 17 to avoid wasting)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

How does amount affect the choice of loss relief?

A

AMOUNT

  • Avoid wasting QCDs
  • Unrelieved QCDs can’t be cfwd against future profits, therefore certain claims for loss relief may lead to relief for QCDs being wasted
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

How does loss relief affect the payment of corporation tax?

A

Use of losses could bring profits to below limits of large/very large companies, which would lead to CT liability being due for payment at a later day

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

When is there a restriction in utilisation of losses?

A

When there is a change in ownership (CIO) and major change in the nature/conduct of a trade

  • within 5 yrs, starting no more than 3 yrs prior to CIO, when looking at the restriction of trading losses
  • within 8 yrs, starting 3 yrs before CIO, when looking at restriction of other losses

When companies trade has become small/ negligible and there is CIO after which there is a significant revival of trade

18
Q

Give some examples of change in nature/conduct of trade

A
  • Services/facilities provided
  • Nature of customers
  • Assets traded in
  • Location of premises (unless moved to increase efficiency)
  • Suppliers, management, staff
  • Methods of manufacturing
  • Pricing or purchasing policies
19
Q

What are the restrictions on carried forward losses?

What are the restricted losses (i.e. which losses are restricted)

A
  • As of 1 April 17, the amount of profits that can be relieved by bfwd losses listed below is restricted
  • Trading losses
  • NTLR deficits
  • Property losses
  • Non-trade IFA losses
  • Management expenses
  • Restriction won’t affect companies with bfwd losses < £5m
  • Max profits relieved in 12m period by bfwd losses is restricted to a deductions allowance of £5m + 50% of profits in excess of this amount
20
Q

Which companies aren’t affected by restrictions on carried forward losses?

A
  • Restriction won’t affect companies with bfwd losses < £5m
21
Q

Egg Ltd trading profit is £8.5m for ye 31 March 2021. It has trading losses bfwd of £9.23m
No related 51% group companies and no other income/losses in yr

Calc Eggs TTP for ye 31 March 21 and what losses can be carried forward to subsequent periods

A

As they are standalone company, has access to full £5m deductions allowance
Max losses that can be offset in ye 31 Mar 2021 calc’ed as:
£5m + 50% * (£8.5m - £5m) = £6.75m

This leaves losses that Egg can carry forward to subsequent acc of
£9.23m - £6.75m = £2.48m

22
Q

How can capital losses be restricted?

A
  • As of 1 April 20, the £5m deductions allowance was extended to apply to bfwd cap losses as well as income losses
  • CY capital losses will cont to be offset in full as restriction only applied to use of bfwd cap losses against net chargeable gains (i.e. CY gains less CY losses)
  • Acc period straddling 1 April 20 is split into 2 notional sub-periods
    > Gains/losses falling in each sub-period are automatically netted off
    > If an overall losses arises in 1 sub-period, that loss can offset against gain in other sub-period without having to consider any restriction (i.e. treated as CY gain)
    > Any bwd losses are then considered. These can be offset without restriction against the net gains in sub-period ended 31 Mar 20. Restriction applies to any offset in sub-period starting 1 April 20
23
Q

How is the deductions allowance on restricted losses carried forward?

A
  • Company can specify the amount of its deductions allowance (if any) to be allocated between trading profits, non-trade profits and net chargeable gains
  • Excess profits figure is based on profits you will relieve the loss against (e.g. pre 1 April 17 loss is used against trading profit so 50% of trading profs would be used)
24
Q

How is the max profit to be relieved by bfwd losses calculated for
Trading profit
Non-trading profit Net chargeable gains
Total profits ?

A

Trading profit = £5m (or part thereof if some allocated to non-trading profits or net chargeable gain) + 50% excess trading profits over £5m

Non-trading profit = £5m (or part thereof if some allocated to trading/ net chargeable gains) + 50% excess non-trading profits over £5m.
Note: non-trade profit includes net gains for the year

Net chargeable gains = £5m (or part thereof if some allocated to trading/ non-trade income) + 50% excess net chargeable gains over £5m

Total profits = £5m + 50% excess total profits over £5m

25
Q

How is the max profit to be relieved by bfwd losses calculated for
Trading profit?

A

Trading profit = £5m (or part thereof if some allocated to non-trading profits or net chargeable gain) + 50% excess trading profits over £5m

26
Q

How is the max profit to be relieved by bfwd losses calculated for

Net chargeable gains ?

A

Net chargeable gains = £5m (or part thereof if some allocated to trading/ non-trade income) + 50% excess net chargeable gains over £5m

27
Q

How is the max profit to be relieved by bfwd losses calculated for

Total profits ?

A

Total profits = £5m + 50% excess total profits over £5m

28
Q

How is the max profit to be relieved by bfwd losses calculated for

Total profits ?

A

Total profits = £5m + 50% excess total profits over £5m

29
Q

What base cost is used to calc the maximum profit that can be relieved by bfwd losses?

A

i.e. the Total profits = £5m + 50% excess total profits over £5m

calculated after current year losses and group relief, but before carried forward losses, carry back relief and post- 1 April 18 cfwd group losses

30
Q

What options do companies have on carried forward losses if they have a current year loss?

A 
- Can choose whether to use this gain against the following before calc the maximum profit that can be relieved 
> Trading profits
> Non-trading profits
> Net chargeable gains 
Or can be split between them as see fits
31
Q

How should you approach questions involving the deductions allowance?

A
  • In exam q you can be expect to be told how the company has elected to offset the deductions allowance
  • Need to determine a logical approach to follow in dealing with any losses
    1. Any CY losses should be offset against the appropriate profits first
    2. Calc TTP after offset of theres losses but before offset of
    a. Bfwd losses
    b. Carried back losses
    c. Post APril 18 cfwd group losses
    3. When considering loss relief where the restriction is relevant use the least flexible losses first (e.g. pre April 18 trading losses of losses)
    4. Claims against total profits are more flexible so can be looked at later. Where the deductions allowance applies, remember once you have considered the relevant max here to then further reduce by this value of any claims already made against trading profits, non-trading profits and net chargeable gains
32
Q

How is a NTLR deficit shown on tax comp?

A

NTLR is shown as NIL on CT computation, and then can get loss relief

33
Q

What happens if loss relief period straddles 1 April 17?

A

The trading losses should be time apportioned and the new and old rules should be applied accordingly

34
Q

TYU6a: Nest Ltd has trading losses bfwd of £10m
Losses arisen ye 31 Dec 19

Comp has following results ye 31 Dec 29
Trading profit £5.5m
Property income £1.5m
Total profits £7m

Calc the max amount of loss bfwd that can be relieved against the ye 31 Dec 20

A
  • Profits that can be relieved are restricted to max amount of £5m + 50% of excess total profits over £5m
    i. e. = £5m + 1m = £6m

Remaining loss of £4m (£10m - £6m) can be carried forward against future total profits

There will be no restrictions in alter periods as remaining loss is under £5m

35
Q

TYU6b: Nest Ltd has trading losses bfwd of £10m
Losses arisen ye 31 Dec 19

Comp has following results ye 31 Dec 29
Trading profit £5.5m
Property income £1.5m
Total profits £7m

Calc the max amount of loss bfwd that can be relieved against ye 31 Dec 20 on basis it arose before 1 April 17

A

Losses can only be carried forward against trading profits as they arose before 1 April 17

Max amount that can be offset is £5m + 50% of excess trading profits over £5m
i.e. 50% * (£5.5m - £5m) = £5m + £0.25m = £5.25m

Remaining loss of £4.75m (£10m = £5.25m) can be carried forward against future trading profits
There will e no restrictions in later periods as remaining loss is under £5m

36
Q

Summarise property losses

A
  • Set against total profits in current acc periods automatically
  • Pre 1 April 17 losses: Excess is cfwd automatically against total profits until loss is fully utilised (subject to deductions allowance if carried forward beyond 1 April 17). No partial claims are allowed
  • Post 1 April 17 losses: excess is cfwd and a claim can be ade to offset it against future total profits (subject to deductions allowance). Partial claims are allowed
37
Q

TYU7: Trifle Ltd has losses bfwd at 1 April 20 as follows
Trading loss pre 1 April 18 £(12m)
Trading loss post 1 April 17 £(1.5m)
NTLR deficit pre 1 April 17 £(0.6m)

Trifle Ltd had the following results for ye 31 mar 21:
Trading profit £8m
Non-trading profit £2.5m
NTLR deficit £(0.6m)

Trifle ltd would like to allocate full £5m deduction allowance to trading profit

Calc amount of each of bfwd losses that can be relieved in ye 31 mar 21

A

YE 31.03.21 NTLR deficit

  • Relieved first by claiming to offset in the CY period
  • The NTLR deficit can be offset against any profits, it will be offset against non-trading profit as the allowance has been allocated to trading income

Pre 1.4.17 trading loss

  • Offset against trading profits only
  • As this is bfwd loss the restriction must be considered
  • Max trading profits eligible for relief = £5m + 50% of excess trading profit over £5m
    i. e. £5m + 50% x * £8m - £5m = £6.5m

Pre 01.04.17 NTLR Deficit

  • Offset against non-trading profits only.
  • As this is bfwd loss, the restriction must be considered
  • Max non-trading profits eligible for relief = £0 + 50% of excess non-trading profits over £0 i.e. £0 + 50% x £1.9m (£2.5m - £0.6m) = £0.95m
  • The deficit bfwd can therefore be offset in full as £0.55m is below the max

Post 1.4.17 trading loss

  • This can be offset against total profits subject to the restriction
  • The max total profits eligible for relief is £5m + 50% x (£10.5m - £0.6m - £5m) = £7.45m

This must be reduced for trading and non-trading profits relieved i.e. £6.5m and £0.55m = £7.45m - £6.5m - £0.55m = £0.4m

38
Q

Summarise non-trading intangible fixed asset losses

A
  • Set against total profits of the current acc period
    > Partial claims are possible
  • Excess is cfwd and can be claimed against total profits (subject to deductions allowance)
    > Once again, partial claims are possible
39
Q

Summarise shell companies

A
  • A shell company is a company with no trade, no inv business and no UK property business
  • If there is a change in ownership of a shell company NTLR and non-trading intangible fixed asset losses can;t be carried backwards or forwards through the date of change of ownership
40
Q

Summarise what relief is available to groups

A

Group relief is also available on

  • Trading losses
  • NTLR deficits
  • Property losses
  • Non-trade IFA losses
  • Management expenses

Although no group relief is available, capital losses can be matched against gains with a chargeable gains group

BPT (7 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions