Unincorporated trader losses Flashcards
When does a trading loss arise
When computing taxable trading income in POA gives negative result
Main consequences of trading loss
Amount of taxable trading income for the period = nil
Eligible for tax relief
If trading loss arises in period of account in opening years of the trade…
the period of account may form the basis period for more than one tax year, the loss is a trade loss for the earlier tax year only.
S83 Loss relief (carry forward)
carry forward against future trading profit of same trade (not against any kind of income)
automatic if no claim made
How claim s83 relief
automatic if no other claims are made
but claim must be made to establish amount of loss to carry forward within 4y of the tax year in which the loss arose
s64 loss relief (CY/CB)
Set against general income for same tax year and or previous tax year in any order
s64 relief is not available if
the business is not being carried on commercially with a view to make profits, s83 is available in this case
How s64 (CY/CB) loss relief is claimed
Optional, must be made within 12 months from 31 January following end of tax year in which loss arose.
If two s64 claims reduce profit in same year, which loss has prioirty
Current year over carried back
s72 opening year relief
Any loss in first four years of trading can be set against general income of three tax years preceding the tax year of loss on a FIFO basis
what loss reliefs apply on opening years
S83, S64 and s72
what loss relief on cessation
s64
s89
s89 loss on cessation
carry back and relief against trading income of final four tax years
Loss available for relief under s89 (terminal loss)
Loss in last 12 months of trading and is increased by overlap profits
How is loss relief under s89 (loss on cessation) relieved
against trading income in last tax year and previous three on LIFO basis
How is s89 (cessation) relief claimed
claim made within 4 years of the end of the last tax year that the business operates
Restriction under s64 (CY/CB) and s72 (opening year) when individual does not spend significant amount of time on trade
loss relief maximum £25,000 when claiming against total income or capital gains
When does an individual spend a ‘significant amount of time in trade’
spends on average at least 10 hours per week personally involved in running business on commercial basis with view to making profit
For arrangements entered into on or after 21 October 2009, loss relief is not available under…for offset against non trading income/gains where arisen as a result of tax avoidance
S64, 72 or s261B TCGA1992
Tax avoidance definition
arrangement entered into with main purpose of generating a loss to offset against non-trade income or capital gains
Restriction on income tax relief against total income is
higher of
- £50,000 and
- 25% of adjusted total income for the tax year in which the deductions are offset
Adjusted total income
total income + amounts deducted under payroll giving - grossed up value of pension contributions to personal pension schemes made under relief at source rules
Amounts subject to restriction against total income are
- relief for trading losses under s64 and s72 (no loss if either relates to deduction for overlap/deducted from profits of trade which generated them)
- Loan interest on loans taken out to invest in close company
