Companies - Losses Flashcards
Non trading losses Trading Losses (20 cards)
What are the three main types of corporation tax loss relief?
Current year relief
Carry back relief (12 months)
Carry forward relief
In which order must loss reliefs be applied?
Losses must be used in the following order:
Current year
Carry back
Carry forward
What type of income can corporate trading losses be set against?
Total profits – including trading, property, investment income, and chargeable gains.
Can a company restrict the amount of trading loss relief used?
Current year and carry back: No – must offset maximum possible.
Carry forward: Yes – company can choose how much to use.
What is current year loss relief?
Offsetting trading losses against total profits of the same accounting period.
Is a claim required for current year relief?
Yes, the company must elect to use this relief.
Are charitable donations considered when applying current year relief?
No – relief is given before charitable donations are deducted.
What is the time limit for standard carry back loss relief?
2 months from the end of the loss-making period.
Can carry back be used without current year relief?
No – current year relief must be used first, then any excess loss can be carried back.
What profits can the loss be set against when carried back?
Total profits of the prior 12 months, before charitable donations.
What happens if the prior accounting period is less than 12 months?
Losses can be carried back into the preceding period for the unrelieved months, on a pro-rata basis.
What is a terminal loss for a company?
A trading loss incurred in the last 12 months of trading before ceasing to trade.
How far back can terminal losses be carried?
36 months on a LIFO (last in, first out) basis.
What can terminal losses be set against?
Total profits (trading, property, gains, etc.) from the three years prior to cessation.
What’s the time limit for a terminal loss relief claim?
Within 4 years from the end of the final accounting period.
What can carry forward loss relief be used against?
Total profits in future periods.
Is there a restriction on how much loss can be used when carried forward?
No – the company can choose how much loss to apply.
How is this different from sole traders?
Sole traders can only carry forward against trading profits from the same trade.
Can losses be used in a year where charitable donations exist?
Yes – and the company can choose to leave enough profit untouched to preserve the benefit of the charitable deduction.
What factors affect the choice of relief method?
Tax rate – use losses against profits taxed at a higher rate
Cash flow – carry back may lead to a repayment
Charitable donations – some loss reliefs reduce profits before donations are applied, possibly wasting them
Flexibility – carry forward allows partial use of losses
