Corporate Losses Ch20

Question 1

Corporate trading losses relief for a continuing business

Answer 1

1. Trading losses can be used vs current accounting period Total profits - all or nothing election

1.2. THEN the company can use any excess loss vs the prior 12 months Total profit (but only after relief vs the current accounting periods total profits)

2. Can be cf to be used in vs total profits of future accounting periods (can choose how much but subject to restriction see further on) as long as the trade was ongoing in the period of relief

Total profits includes chargeable gains but before QCD’s

Question 2

How to decide which relief to use? 4 lines

Answer 2

1. Cashflow (relieving vs an earlier period gives quicker cashflow back into the company)
2. Loss of relief for QCD’s (try not to use losses vs profits otherwise covered by QCD’s)
3. Instalment payments (can we reduce profits to below the limit for instalment payments) - ch26
4. The rates of tax saved (important since profits before FY23 are taxed at 19%)

Question 3

Ct rate formula when AP=TTP

Answer 3

If the company has no dividend income from non associated companies, its TPP=AP Therefore formula is:

(Lower limit x 19%) + (upper limit - TTP x 26.5%)

This means profits in this range are taxed at 26.5% and losses against this should be prioritised

Question 4

How does terminal loss relief work for companies

Answer 4

1. Terminal loss is the trading loss from the final 12 months of trading
2. Terminal loss can be used vs total profits of the same accounting period(i) and then carried back to be set against total profits of the prior 36 months (ii) - all or nothing relief
3. Use the losses in chronological order and use non terminal losses before using terminal losses

Question 5

What is restriction on relief for losses bf

Answer 5

1. If a company’s trade becomes small or negligible, the trading losses bf will only be able to be offset vs profits of the same trade in future periods
2. The maximum relief for losses bf vs the current period profits of a company (or group) is £5m+ 50% of the excess profits over £5m (this applies to trading, non trading losses and capital losses bf)

Question 6

Relief for non trading losses ch18

Answer 6

Property losses - automatically set against total profits (before QCD’s) against current AP - cf unused amounts against total profits - can choose when and how much

NTLR deficits - relief against total profits (before QCD’s) - can choose how much against current AP

Can carry back relief against ntlr income of prior 12m - all or nothing

Can cf unused amounts against total profits - can choose when and how much

Capital losses - automatically set against chargeable gains of same AP in current AP -

Cf excess against next available chargeable gains

Question 7

Losses on change of ownership restrictions

Answer 7

Restrictions on loss relief apply where there is:
- change in ownership
- a major change in the nature or conduct of the trade of a company within a 5 year period of the change in ownership

If conditions are satisfied then:
- no relief for trading losses bf from before the ownership change is permitted vs profits from after the change of ownership date

• no relief for trading losses generated after the ownership change is permitted vs profits from before the change of ownership date