Chapter 11 Relief for trading losses Flashcards
11.2 Relief for trading losses
Options:
• 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 2017 and set against total profits of a later accounting period
11.3 Current year relief
The loss is set against total profits before deducting qualifying charitable donations of the current AP. The claim is not a partial claim, the claim must either be the lower of the available loss or the available profit.
11.4 Carry back of losses
The claim to carry back a loss under s37(3)(b) may only be made once a current year claim has been made. The loss carried back is set against total profits in the previous 12 months before any qualifying charitable donations. The carry back claim is also not a partial claim.
If the previous accounting period is less than 12 months, you can carry back to the period before that, by applying time-apportionment to the total profits of the previous period.
11.6 Losses Carried Forward
Pre-2017 – set against the first available future trading profits from the same trade. Automatic, no claim needed, the company can claim for this or part of this to not be offset.
Post 2017 – the company make a claim for all or a specified part of it to be set against total profits of the next accounting period. The claim must be made within 2 years of the end of the subsequent accounting period. This is provided the company continues to trade and the trade does not become small or negligible during the year of loss.
Restriction on losses carried forward – 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 than can be offset is the lower of:
• the unrelieved brought forward losses
• the deductions allowance of £5 million per group or standalone company plus 50% of the company’s unrelieved profits above that amount
if the company does not specify the amount of allowance in the tax return, the maximum brought forward loss the company can offset is 50% of the unrelieved profits.
From April 2020, the deductions allowance is shared between income and capital profits
Trade losses carried forward to the final accounting period – a form of terminal loss relief is available when a company ceases to trade. The relief allows trade losses to be set against the profits of the final three years of trade without being subject to the normal loss restriction for losses carried forward. However the pre-April 2017 losses and losses in a small or negligible trade will still only allowed to be offset against profits of the same trade. There is no equivalent relief for non-trading losses. The conditions for relief are:
• only available in periods subsequent to the original loss-making period and in any event may only be set against accounting periods beginning on or after 1 April 2017
• if an accounting period falls partly within and partly outside the final three years of trade, the trade profits or total profits of the straddling period will need to be pro-rated
11.7 Terminal Loss relief
When a company ceases to trade and it makes a trading loss in the final period it cannot carry forward losses. The trading loss in the final 12 months of trade can be carried back against the total profits of the previous three years ending immediately before the start of the loss-making period. Losses are relieved first against total profits of the loss-making period, then carried back for a maximum of 36 months against later periods before those of earlier periods.
