Chapter 21 Corporation tax losses

Question 1

What options does a single company have for a trading loss?

Answer 1

Current year claim - against Total Profits
Carry Back claim - against Total Profits
Carry forward - against Total Profits

Question 2

What are the rules surrounding a current year claim for trade losses?

(Companies)

Answer 2

Against Total Profits (before QCDs)
An all or nothing claim (cannot choose amount)
Optional - no need to make a claim

Question 3

What are the rules surrounding a carry back claim for trade losses? (Companies)

Answer 3

Must make a current year claim 1st
Against Total Profits (before QCDs)
An all or nothing claim (cannot choose amount)
Optional - no need to make a claim

Question 4

What are the rules surrounding a carry back claim for trade losses?

(Companies)

Answer 4

Against Total Profits (before QCDs)

Can choose the amount (and therefore preserve QCDs)

Question 5

If a question says the company wants to claim loss relief ‘as soon as possible’ what order do you make the claims in?

Answer 5

1. Current year
2. Carry back
3. Carry forward

Question 6

When do I need to worry about the use of brought forward losses being restricted?

Answer 6

Only if the losses brought forward are greater than £5 million (quite unusual in exam Qs)

Use of brought forward losses are restricted to £5m + 50% x (Profits - £5m)

Question 7

When does terminal loss relief apply?

Answer 7

Only if the company in the question has ceased trading altogether

Question 8

What is terminal loss relief?

Answer 8

It allows any loss incurred in the final 12 months of trading to be carried back 36 months against Total Profits (rather than the usual 12 months).
LIFO.