losses - opening/closing years

Question 1

opening year losses s.72

Answer 1

• early trade loss relief
• applies to losses sustained in first 4 tax years of trade
  ie trade 1st Jan 23 - available in 23/24, 24/25, 25/26 & 26/27
• carries back loss against previous three tax years (earliest first)
  ie loss in 23/24 carry back to 20/21 then 21/22 then 22/23
• no loss is set against income of the loss making year under s.72
  *all or nothing for all 3 years combined
  *claim must be made by anniversary of 31 jan (for 23/24 make by 31 jan 26)
  *no extension to cap gains

Question 2

s.72 restriction

Answer 2

*higher of £50K & 25% of adjusted total income
* applies when determining how much loss relief can be set against non-trading income
* no restriction against loss of the same trade

Question 3

closing year losses s.89

Answer 3

*terminal loss relief
* applies in the final year of trade
* losses can be carried back to the previous 3 tax years
* use the later year first
* set against trading income only
* s.83 does not have to be claimed, a claim under s.64 could be made instead or both
* terminal loss period is the final 12 months of trade - on an ACTUAL basis
* when ceasing trade in 23/24 transitional rules do not apply
* overlap profits can increase the terminal loss
* claims must be made within 4 years from end of tax year of cessation

Question 4

calculating terminal loss s.89

Answer 4

eg. 23/24
*usual ye 31dec
*31 dec 22 profit
*30 jun 23 loss and final period
*calc loss from 6 apr 23 to 30 jun 23 + overlap profits (increasing loss)
*calc loss from 1 jul 22 to 31 dec 22 + 1 jan 23 to 5 apr 23 (if gives a profit then don’t include)
* loss amount calculated can then be applied to 22/23, 21/22 and 20/21
*any remaining loss is wasted

Question 5

losses under transition to tax year basis

Answer 5

• if loss arises in transitional year then losses can be dealt with as normal under s.64, s.83 and s.72
• if loss is created from deducting overlap profit in transitional year then it is treated as if a terminal loss has occurred
• can be carried back for 3 years under s.89
• the amount that can be claimed under s.9 is the amount of overlap profit

Question 6

losses remaining on incorporation

Answer 6

• the losses do not get transferred to the business they remain with the individual
• individual has ceased trade and therefore losses cannot be carried forward under s.83
• if the individual is going to be receiving income in the form of salary / dividends from the trade that has been incorporated then they can carry forward the losses under s.86
  *s.86 losses can be claimed against income (sal/div) from the incorporated trade

Question 7

rules for s.86

Answer 7

conditions for a s.86 claim:
1. business was transferred to company and consideration was wholly or mainly shares (>80% for mainly)
2. shareholder still owns shares throughout the whole tax year in which the loss is claimed & company is still carrying on the trade