Losses for companies Flashcards
Calculation of trading loss
Tax adjusted net profit (loss) x/(x)
Less: Capital allowances (x)
= Adjusted trading loss
What are the four ways in which a company can offset trading losses?
- carry forward relief
- current year relief
- current and prior year relief
- terminal loss
What are the key features of carry forward loss relief?
- the loss is carried forward for offset in future accounting periods
- the loss is set against total profits before qualifying charitable donations
- it is possible to restrict the amount of loss relieved
- the loss can be carried forward indefinitely
- there is no need to make a current year or a prior year claim first
- a claim must be made within two years of the end of the accounting period in which the loss is relieved
Carry forward loss relief
- the loss can be carried forward and set off against future total profits before QCDs
- the losses can be carried forward:
# after a current year claim only
# after a current year and prior year claim
# if no current or carry back claims are made
If a current year loss relief claim is made, trading losses are set off against:
- total profits before deduction of QCDs
- of the same accounting period
A current year claim must be made:
- for whole loss; a partial claim is not allowed
- within two years of the end of the loss-making accounting period
The carry back claim
- is optional
-must be made within two years of the end of the loss-making accounting period - can only be made if a claim for current year loss relief has been made fist
Under carry back loss relief, trading losses are set off against:
- total profits before deduction of QCDs
- of the previous 12 months
- on a LIFO basis
If the accounting period preceding the period of the loss is less than 12 months:
- the total profits of the accounting period that falls partly into the 12 month carry back period must be time apportioned
- the loss can only be offset against the total profits which fall within the 12 month carry back period
- the loss is offset on a LIFO basis
When a company incurs a trading loss during the final 12 months of trading, it is possible to make a carry back claim:
- set against total profits
- of the three years preceding the loss-making period
- on a LIFO basis
Where the company has prepared accounts for a period other than 12 months during the three years preceding the loss-making period:
- apportionment will be necessary in the same way as for a normal carry back claim
- so that losses are only carried back against the proportion of profits falling within the three year period
Where there is a choice of loss reliefs available, the following factors will influence the loss relief chosen:
- tax saving
- cash flow
- wastage of relief for QCDs
Property business losses are:
- automatically offset (i.e. mandatory) against total profits (before QCDs) for the current period
- any excess can be carried forward and offset against future total profits (before QCDs) of the company
Property business losses notes
- a claim carry forward a loss and offset it against total profits of a future period must be made within tow years of the end of the accounting period in which the loss is relieved
- there is no carry back facility for property business losses
- partial loss claims are not allowed when offsetting the loss in the current period but are allowed for losses brought forward from earlier periods
- if applicable, property business losses are set off before trading losses
A capital loss incurred in an accounting period is:
- relieved against any chargeable gains arising in the same accounting period
- any excess losses are then carried forward for relief against arising in the future accounting periods
