Corporation Tax Losses Flashcards
(23 cards)
when does a trading loss arise?
when tax adjusted trading profit after deducting capital allowances & SBAs is negative
what are the options for loss relief?
- current year/prior year against total profits (before qcd’s)
- carry forward against future total profits (before qcd’s)
how does offsetting losses against current/prior year total profits work?
- offset against total profits before QCDs
- possible claims are current year only or current year then carry back 12 months
- must use as much as possible (QCDs may be wasted)
how does offsetting losses against future total profits work?
- carry forward against future total profits (before qcd’s)
- a claim must be made
- partial claims are allowed so the QCDs are not wasted
how to deal with losses left over after offsetting against CY/PY total profits?
any unused trading loss is carried forward to future accounting periods & offset against total profits
when offsetting against CY/PY, do you deduct from QCDs?
no
do not deduct from QCDs, they are just wasted
when must a claim be made for CY/PY offsetting?
must be made within 2 yrs of the end of the loss-making accounting period
e.g., loss incurred in ye24, claim made by ye26
do b/f losses have to be used in full?
no
any loss remaining can be carried forward and used in subsequent accounting periods
when must a claim for carry forward of trading losses be made?
must be made within 2 years of accounting period in which loss is relieved
e.g., loss is incurred in ye25, relieved in ye26, must be claimed by ye28
e.g., if there’s a remainder, must be claimed by ye29
terminal loss relief?
if a loss arises in last 12 months of trade, the carry back period is extended to the preceding 36 months (on a LIFO basis)
what is different between terminal loss relief and regular carry back relief?
TLR is offset against 36 months prior, regular relief only goes back 12 months
TLR is offset against prior year as well as previous years, regular relief only goes back
when must TLR claims be made?
within 2 yrs of cessation
how should you choose to offset your loss relief?
- save tax at highest rate (26.5%, 25%, 19%)
- carry forward avoids wasting QCDs
- repayment of CT could held with cash flow
- carry back claim will generate a repayment of CT
- carry forward have to wait for relief (cash flow)
- future profits are uncertain
effective rate of tax savings?
<50k AP = 19%
250k>50k AP = 26.5%
>250k AP = 25%
NTLR deficit?
occurs when NTLR interest receivable is less than NTLR interest payable
in this case - the NTLR = 0
loss relief options for NTLR deficits?
- offset against total profits in CY (partial claim allowable to preserve QCDs)
- offset against NTLR profits of previous 12 months
- carry forward against future total profits (partial claim allowable to preserve QCDs)
when must claim be made for relief of NTLR?
within two years of end of the loss making period
how are property losses treated?
automatically offset against total profits (before QCDs) in the CY
no partial claim and QCDs may be wasted
any excess is carried forward
can a claim be made to offset b/f property losses against total profits?
yes
also, a partial claim to preserve QCD is allowed
how are current year capital losses handled?
offset against chargeable gains in same period
remaining loss is c/f to be offset against the first available future gains
priority order of loss relief claims?
1 - NTLR deficits
2 - property losses
3 - trading losses
restriction on carry forward of losses?
there is a limit on the amount of profits/gains that can be relieved by losses carried forward
profits relieved are limited to £5m plus 50% of the excess of the profit/gain over this amount
e.g., 6m loss, 5m + 500k is the loss relief available to be offset
deductions allowance must be claimed
what happens if deductions allowance for carry forward losses isn’t claimed?
amount of losses available to be offset is restricted to 50% of the losses available
