Chapter 5: Sole Trader - Losses Flashcards
what will it say if there is a loss in the tax comp
NIL
Loss can be offset against future trading profits of the SAME trade
Claim needed?
Ref
Losses carried forward and deducted from taxable trading profits arising from the SAME trade in future years.
Will happen automatically (no claim needed)
Losses must be deducted from the first available profits in the future, so you can cannot keep carrying them forward to choose when you want to use them.
Losses can be offset against current year TOTAL income
Claim needed?
Deducted from total income in the tax year
Claim must be made
Must be used for the maximum amount possible, either reducing total income to NIL or exhausting the full amount of the loss
Losses can be offset against prior year TOTAL income
Claim needed?
Loss can be carried back and deducted against TOTAL income of the preceding year
Claim needed.
Made for the the maximum possible loss, either reducing total income to NIL or exhausting the full amount of the loss.
Different options:
Cash flow
Personal allowance
Cash flow - relieving the loss in the current year will mean less cash to pay out now for tax or carrying back will mean a cash refund
Personal allowance - if income is less than the personal allowance there would be no benefit in utilising the loss relief against current year total income as it would be wasted. Same with carry back
Losses in the opening years of trade
REf
Losses in any of the first four tax years of the trade can be carried back and set against TOTAL income of the three tax years preceding the year of loss on a FIFO basis
So go back three years and work forwards
Terminal Losses
Incurred in the last 12 months of trading
Go back and set against trading profits of the three tax years preceding the year of the loss on a LIFO basis
Claim must be made within 4 years from the end of the last tax year of trade
