Unincorporated Trader Losses

Question 1

when does a trading loss arise?

Answer 1

when adjusted profit after capital allowances is negative

(ignore transitional profits)

Question 2

what is the impact of transitional profits?

Answer 2

they are not taxed as part of trading income

they are used to increase the IT liability

Question 3

trading loss options?

Answer 3

s83 = carry forward loss to offset future profits

s64 = offset loss against income in CY/PY

s261B = offset gains in CY/PY

Question 4

s83?

Answer 4

carry forward of trading losses

Question 5

how does carry forward of trading losses (s83) work?

Answer 5

trading loss is automatically offset against the first available future trading profits

Question 6

s64?

Answer 6

loss relief against total income

Question 7

loss relief against total income?

Answer 7

taxpayer may elect to offset a trading loss against total income in CY/PY

can do in either order

Question 8

when must a taxpayer claim loss relief against CY/PY income?

Answer 8

within 12 months from 31jan following the end of the tax year in which the loss arose

Question 9

is there a restriction on reliefs against other income?

Answer 9

yes

for regular traders and for non-active traders

Question 10

loss relief restriction against other income for non-active traders?

Answer 10

loss relief is restricted to a maximum of 25,000 per tax year

Question 11

what is the cap on income tax reliefs against other income?

Answer 11

higher of:
- 50,000
- 25% of adjusted net income

Question 12

adjusted total income?

Answer 12

total income + payroll giving donations - grossed up pension contributions

Question 13

s261B?

Answer 13

relief for trading losses against chargeable gains

Question 14

when can a taxpayer elect to use s261B relief for losses against chargeable gains?

Answer 14

after the corresponding s64 claim has been made (offsetting against cy/py profits)

Question 15

the amount of trading loss that can be offset against capital gains is…

Answer 15

lower of:
- loss remaining after s64 claim
- maximum amount

Question 16

condition for capital losses in s261B?

Answer 16

full capital loss b/f must be used in calculation of ‘maximum amount’

even if it’s not being offset in calculation of CGT

Question 17

computation for s261B?

Answer 17

(first deduct loss from income)

capital gains xxx
less: capital loss in CY (xxx)
less: trading losses treated as capital losses (xxx)
equals: current year gains xx

less: AEA (3000)
less: capital loss b/f (xxx)

Question 18

‘maximum amount’?

Answer 18

capital gains xxx
less: cy capital losses (xxx)
less b/f capital losses (xxx)

equals: maximum amount xxx

Question 19

is there loss relief against NIC?

Answer 19

yes

when calculating class 4 NIC, trading losses offset against non-trading income are treated as if carried forward against first available trading income

Question 20

s72?

Answer 20

rules for when an individual starts trading

Question 21

loss relief for new businesses?

Answer 21

special loss relief is available for losses that arise in first four tax years of trade

trader may elect to carry back losses to three previous tax years on a FIFO basis against TOTAL income

Question 22

can opening year loss relief generate a refund of income tax?

Answer 22

yes

Question 23

s89?

Answer 23

terminal loss relief

Question 25

terminal loss relief?

Answer 25

available for losses made in final 12 months of trading trader can carry back a loss on preceding 3 years of TRADING income on a LIFO basis

Question 26

when must terminal loss relief be claimed?

Answer 26

within four years of the final year of trade

Question 27

when must opening year loss relief be claimed?

Answer 27

12 months from the 31Jan following the tax year in which it arose

Question 28

losses for partners?

Answer 28

partners have the same loss relief options as sole traders restriction is that they can only claim loss relief up to a maximum of their capital contribution - any remaining losses are carried forward