Chapter 10 Relief for trading losses Flashcards
10.2 Relief for trading losses
When a company makes a loss there are a number of options available:
• Set against total profits in the current accounting period
• Carry back and set against total profits in the preceding 12 months
• Carry forward a loss made before 1 April 2017 and set against next available future trading profits from the same trade
• Carry forward a loss made after 1 April and set against total profits of a later accounting period. Total profits is income and gains before deducting qualifying charitable donations
When a company has both pre- and post-1 April 2017 losses it may choose the order in which these are set of against future profits. There are restrictions to the number of losses which may be carried forward to set off against profits made after 1 April 2017.
10.3 Current Year Relief
The loss is set against total profits before deducting qualifying charitable donations of the current accounting period. The claim must be for the lower of the available loss or the available profit. No partial claim is allowed, the claim must use either all of the loss or eliminate all of the available profits.
10.4 Carry back of losses
The claim to carry back a loss under s37 (3b) CTA 2010 may only be made once a current year claim has been made. The loss carried back is set against total profits arising in the previous 12 months, before ant qualifying charitable donations. The claim must be for the lower of the available loss or the available profit.
The carry back claim is for a full 12-month period, if the previous accounting period is less than 12 months, you can carry back to the period before that one by applying time-apportionment to the total profits of the previous period.
10.6 Losses Carried Forward
Pre 1 April 2017 – losses incurred before April 17 are set against the first available future trading profits from the same trade. Relief is done automatically; no claim is required. The company can claim for the loss or a specified amount not to be offset against the profits, provided the later period begins on or after 1 April 2017. The claim must be made within two years of the end of the later accounting period.
Post 1 April 2017 – when losses are incurred in an accounting period beginning on or after 1 April 2017, provided the company continues to trade, the company may make a claim for the unrelieved trading loss bought forward or a specified part of it to be set against total profits of the next accounting period. The claim must be made within two years of the end of the subsequent accounting period
Losses incurred after 1 April 2017 which arose in the period in which the trade became small or negligible may only be set against the first available future profits of the same trade.
Restriction on losses carried forward – the amount of carried forward losses is now restricted from 1 April 2017 but this applies to all brought forward losses. This restricts the amount of brought forward losses offset by companies with profits exceeding the deductions allowance of £5 million of profits per group or standalone company. The allowance is proportionally reduced for accounting periods of less than 12 months. The maximum amount of brought forward losses which may be offset against profits in one accounting period is the lower of:
• The unrelieved brought forward losses
• The deductions allowance of £5 million per group plus 50% of the company’s unrelieved profits above that amount. Unrelieved profits is total profits less any current year losses
A company must specify the amount of the allowance in its tax return, otherwise the maximum will be 50% of the company’s unrelieved profits.
From 1 April 2020, the amount of brought forward capital losses which may be set against chargeable gains is also restricted, this means the deductions allowance can be now allocated against brought forward capital losses.
10.7 Terminal Loss relief
The trading loss of the final 12 months of a trade can be carried back against the total profits of the previous three years ending immediately before the start of the loss-making period when a company ceases to trade and makes a loss in the final period. Losses are first relieved in the current period before being carried back.
