Unincorporated businesses Flashcards
Trading losses
two main consequences :
Amount of taxable trading income for the tax year to which the period of account relates will be Nil.
Trader will be eligible for tax relief for trading loss
Use of trading losses S83
Type
Set against
Time limits
conditions
claim
total income restriction
Anti avoidance
Cfwd
Set against future profits from same trade
Cfwd until fully utilised or cease tom trade
Conditions - automatic - cannot restrict use of loss to preserve annual allowances
Claim - Need to agree amount of loss within 4 years of end of tax year in which loss arose
Total income restriction - NA
Anti avoidance NA
Use of trading losses S64
Type
Set against
Time limits
conditions
claim
total income restriction
Anti avoidance
Current year and or prior year (any order)
Set against total income (usually NS, SI then Div)
Time limits - current year and/or prior year
Conditions :
Optional but ‘all or nothing’
can claim in one or both years
if used in both years can be offset in any order to masimise use of PA
Must carry on trade with a view to making profit
Claim - within 12m from 31 January following the end of the tax year in which the loss arose
Total income restriction - restrict to higher of £50k or £25% ATI (appendix B notes)
Anti avoidance :
Possible restriction for non-active traders or partners in an LLP (see appendix B)
Use of trading losses S261B
Type
Set against
Time limits
conditions
claim
total income restriction
Anti avoidance
Relief against gains
set against gain before other capital losses
Time limits - current and / or prior year (must offset using S64 in year of first gain)
Conditions - Max loss v gains is lower of:
-unrelieved trading loss
or
-CY gains less CY capital losses and ALL bfwd capital losses
Claim - Within 12m from 31 Jan following end of tax year in which the loss arose
No total income restriction
Anti avoidance - possible restriction for non-active traders or partners in an LLP (see appendix B)
Use of trading losses S72
Type
Set against
Time limits
conditions
claim
total income restriction
Anti avoidance
Loss in first 4 tax years
Against total income (Usually NS,SI and DIV)
carry back prior 3 years on a FIFO basis
Conditions - optional but all or nothing
Time limit - Within 12m from 31 Jan following end of tax year in which loss arose
Total income restriction - Restrict to higher of £50,000 or 25% of ATI
Anti avoidance - possible restriction for non active traders of partners in an LLP
Use of trading losses S89
Type
Set against
Time limits
conditions
claim
total income restriction
Anti avoidance
Terminal loss relief on cessation
set against trading profits from the same trade
Time limit - carry back to prior 3 years on a LIFO basis
Conditions - optional but all or nothing
Claim - within 4 years of end of last tax year in which business operated
No income restrcition
no anti avoidance
Use of trading losses S86
Type
Set against
Time limits
conditions
claim
total income restriction
Anti avoidance
Loss relief on incorporation
Time limit - income from the company
Time limits - Carry forward until fully realised
Conditions:
Consideration on incorporation at least 80% shares
and
Shares held throughout tax year of relief
Claim within 4 years of end of tax year to which claim relates
No income restriction
Not applicable
Proforma
Look on pg 103
Loss relief on cessation S89
relief available for loss in last 12m trading
Terminal loss calc A+B
A) net profit or loss to 5 April (remainder months of below)
B) Loss 6 April to cessation (12m - 6 April)
choosing loss relief
consider
rate of income tax
wastage of PA, SRB and Div band.
Projected level of future profits and tax rates
Opening years
S72 Cback 3 tax years
S64 current or prior years
S64 current or prior then extended against gains under S261.B
S83 carry forward
Closing
S89 carry back
S64 current or prior year
S65 current year or prior year then extended against gains under S261B
S86 cfwd if incorporating
Use of losses and PA to maximise relief
usually offset S64 and S72 against NSI, SI and then DI
If tax payer has a savings income nil rate band (£500 or £1000) it is possible to offset the loss relief against dividend income first
Partnership loss relief
losses allocated to partners based on profit share arrangement in same way as profits
each partner makes own loss claim based on own circumstances
Notional profits
If a partnership makes an overall loss and allocation of that loss results in one or more partners making a notional profit
loss allocation must be adjusted
A partner with a notional profit will have a nil amount of taxable income
The notional profit will then be reallocated to the remaining partners in proportion to the loss originally allocated to them
as per loss allocation from tax compliance
