Unincorporated trader losses

Question 1

When does a trading loss arise

Answer 1

When computing taxable trading income in POA gives negative result

Question 2

Main consequences of trading loss

Answer 2

Amount of taxable trading income for the period = nil
Eligible for tax relief

Question 3

If trading loss arises in period of account in opening years of the trade…

Answer 3

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.

Question 4

S83 Loss relief (carry forward)

Answer 4

carry forward against future trading profit of same trade (not against any kind of income)
automatic if no claim made

Question 5

How claim s83 relief

Answer 5

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

Question 6

s64 loss relief (CY/CB)

Answer 6

Set against general income for same tax year and or previous tax year in any order

Question 7

s64 relief is not available if

Answer 7

the business is not being carried on commercially with a view to make profits, s83 is available in this case

Question 8

How s64 (CY/CB) loss relief is claimed

Answer 8

Optional, must be made within 12 months from 31 January following end of tax year in which loss arose.

Question 9

If two s64 claims reduce profit in same year, which loss has prioirty

Answer 9

Current year over carried back

Question 10

s72 opening year relief

Answer 10

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

Question 11

what loss reliefs apply on opening years

Answer 11

S83, S64 and s72

Question 12

what loss relief on cessation

Answer 12

s64
s89

Question 13

s89 loss on cessation

Answer 13

carry back and relief against trading income of final four tax years

Question 14

Loss available for relief under s89 (terminal loss)

Answer 14

Loss in last 12 months of trading and is increased by overlap profits

Question 15

How is loss relief under s89 (loss on cessation) relieved

Answer 15

against trading income in last tax year and previous three on LIFO basis

Question 16

How is s89 (cessation) relief claimed

Answer 16

claim made within 4 years of the end of the last tax year that the business operates

Question 17

Restriction under s64 (CY/CB) and s72 (opening year) when individual does not spend significant amount of time on trade

Answer 17

loss relief maximum £25,000 when claiming against total income or capital gains

Question 18

When does an individual spend a ‘significant amount of time in trade’

Answer 18

spends on average at least 10 hours per week personally involved in running business on commercial basis with view to making profit

Question 19

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

Answer 19

S64, 72 or s261B TCGA1992

Question 20

Tax avoidance definition

Answer 20

arrangement entered into with main purpose of generating a loss to offset against non-trade income or capital gains

Question 21

Restriction on income tax relief against total income is

Answer 21

higher of
- £50,000 and
- 25% of adjusted total income for the tax year in which the deductions are offset

Question 22

Adjusted total income

Answer 22

total income + amounts deducted under payroll giving - grossed up value of pension contributions to personal pension schemes made under relief at source rules

Question 23

Amounts subject to restriction against total income are

Answer 23

• 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