19. TC - Corporation tax losses

Question 1

When does a trading loss arise?

Answer 1

When the tax adj trading profit after capital allowances is -ve

Question 2

How is the trading loss shown on the corporation tax comp

Answer 2

Shown as nil rather than -ve

Question 3

What are the different options for dealing with trading losses for a company?

Answer 3

S45a

• Carry forward against future total before for QCDs
• A claim must be made
• Partial claims are allowed so QCD isn’t wasted

S37

• offset against total profits before QCD
• possible claims are ocurrent year only or current year then carry back 12 months
• Must use as much as possible

Question 4

What is the exam technique to deal with corporation tax losses

Answer 4

1. Determine the tax adjusted profits and losses after capital allowances for each accounting period
2. Set up a pro forma corporation tax computation for each accounting period side by side and leave spaces for the loss set off to be inserted later
3. Set up a loss memo working for each loss to show how it is utilised
4. If there is more than 1 loss, consider them in chronological order
5. Set off losses according to the requirements of the question

Question 5

How does carry forward relief (S45a) work?

Answer 5

Any amount of trading loss which is not used in another claim, or is left unused, is carried forward and a claim can then be made to offset the loss against the total profits of the company in future periods

Amount that can be claimed may be subject to certain restricted

Question 6

Does the bfwd have to be full for carry forward relief (s45a)?

Answer 6

No, so in the exam you should assume that s45a relief will be restricted to preserve QCDs unless instructed otherwise

Question 7

What is the deadline for making a carry forward relief claim?

Answer 7

Must be made within 2 years of the accounting period in which it is relieved

Question 8

What are the options for a current year and prior year claim?

Answer 8

Current year claim may be made to offset a trading loss against the company’s total profits in the same acc period

Only after a current year claim has been made may any remaining loss then be carried back and set against the company’s total profits for the previous 12 months

Question 9

What is the disadvantage of a current year claim?

Answer 9

If it is made, the maximum amount of loss must be taken so the tax benefit of any QCDs may be wasted

Question 10

What is the deadline for a current year and prior year claim (s37)

Answer 10

must be made within 2 years of the end of the loss making accounting period

Question 11

How does terminal loss relief work?

Answer 11

If a loss arises in the last 12 months of trade then under s37, the carry back period is extended to the preceding 36 months (on a LIFO basis) rather than the preceding 12 months

When counting back 36 months, start from the beginning of the loss making period

To calc the terminal loss, consider the final 12 months of trading but ignore any profit making periods

Question 12

What is the deadline for terminal loss relief on cessation of trade?

Answer 12

must be made within 2 years of the end of the loss making accounting period

Question 13

How are non-trade loan relationships dealt with on the tax comp?

Answer 13

On the comp they appear as nil

then there are different loss relief options

Question 14

What are the loss relief options for NTLR deficits?

Answer 14

Current year - set against total profits of same accounting period
Partial claim allowable to preserve QCDs

Previous 12 months: set against NTLR profits for previous 12 months

Carry forward - set against future total profits. Partial claim allowable to preserve QCDs

Question 15

What is the deadline for relief on NTLR?

Answer 15

Claim must be made within 2 years of the end of the loss making accounting period

Question 16

How is a net property loss dealt with?

Answer 16

Automatically offset against total profits (before QCDs) in the current acc period
Since this is an automatic relief, no partial claim is available and QCDs might be wasted

Any excess is carried forward and a claim can be made to offset the loss against total profits (before QCDs) in future years
Claim has to be made and partial claim is permissible to preserve QCDs

Question 17

What is the deadline for a claim to use a property loss in a future period?

Answer 17

Claim to use a property loss in a future period must be made within 2 years of the acc period relief

Question 18

Describe priority of loss relief claims

Answer 18

If there are more than 1 type of loss within an acc period, they are offset against total profits in the following order:

1. Current period NTLR deficits
2. Current period property losses
3. Current period trading losses

Question 19

What is the restriction on the carry forward losses and what kind of losses does it apply to?

Answer 19

Applies to

• trading losses
• NTLR deficits
• property losses

Profits which can be relived are limited to an annual deductions allowance of £5m + 50% of the excess profits over this amount

Question 20

How are capital losses dealt with for companies?

Answer 20

Current year capital losses are offset against chargeable gains in the current accounting period

Any remaining loss is carried forward to be offset against the first available future chargeable gains