CH 15 - Losses - Opening & Closing Years

Question 1

Define s.72, ITA 2007

Answer 1

Early Trade Loss Relief
*first 4 years can be used against net incoem of the 3 tax years preceeding the year of the loss (FIFO basis)

ITA 2007, s.72

Question 2

Define Restriction under
ITA 2007, s. 72

Answer 2

Early Trade Loss is restricted of greater of:
* £50,000; and
* 25% x adjusted total income

applies to loss relief used against non-trading income,
and does not apply against incoem from the same trade

ITA 2007, s.24A

Question 3

When is deadline for s.72 ITA 2007?

new businesses

Answer 3

1st aniversary of 31 January the tax year of the loss

Question 4

Define Terminal Loss Relief

Answer 4

Enables to use a loss of the final 12 months of trade
to be c/back against income of the 3 previous tax years on LIFO basis.

ITA 2007 , ss.89 and 90)

Question 5

How is terminal loss relief
calculated?

Answer 5

Its calculated on an actual basis*
& increased by overlap relief**

• by ingnoring profits should 12mts stradle 5th of April

** should loss created on transition is increased by overlap profit, this will be eligible for termian loss relief s. 86, ITA 2007

Question 6

When a loss created by overlap profit
can be eligible for terminal loss relief?

Answer 6

Where a loss is created or increased by the deduction of overlap profit in 2023/24

Question 7

How losses on incorporation can be utilised?

Answer 7

The loss remaning on incorporation of a business,
can be c/fwd by individual and set against his/her future income from the company*. (ITA 2007, s.86)

• against individual’s income derived from the company as e.g. salary & dividends.

(It is automatic, given,
- consideration paid at incorporation was ‘wholly or mainly (more than 80%)’ in shares,
- and the shareholder owned the shares throughout the whole of the tax year in which the relief is claimed
- and company still carries on the trade. )

Question 8

When under ITA 2007, s.86 relief is automatic?
& define s. 86

Answer 8

Loss on incorporation

The relief applies automatically provided the consideration at incorporation was more than 80% comprised of shares,

• the shareholder owned the shares throughout the whole of the tax year in which the relief is claimed, and
• the company still carries on the trade.