Business Tax (FA2015)
Trading Losses
Louise Brereton
23 November 2016
AAT is a registered charity. No. 1050724
Contents
1
What are trade losses
2
Loss relief options
3
Which loss relief option to chose
4
Questions
Trade Losses
A negative result in the trading profit computation for the period of account
Nil profit is reported on the corporation tax computation
Decide which loss relief options to take
Loss Relief Options
Carry forward
• Automatic loss relief
• First available, same trade profits
• Use as much as possible
Loss Relief Options
Current year / Prior year
• Claim must be made
• Use against Taxable Total Profits (TTP) but before Qualifying
Charitable Donations (QCD’s)
• Use as much as possible
• Current year only or current year then prior year (12 months)
• Any unrelieved losses carried forward
The layout
y/e
current year
Trade profit
Loss b/f
Total other
income
Loss c/y
Loss p/y
Less QCD’s
TTP
y/e
prior year
y/e
future year
Loss memo
Example 1
Company Ltd would like to carry forward its trading loss of £33,100 from
31 March 2015 to future years. It estimates its future trading profits will
be as follows:
Year end 31 March 2016 £25,000
Year end 31 March 2017 £76,500
Company Ltd has no other income
Show how the loss will be utilised
NB: c/f against the first available same trade profits
Example 1
y/e
31/03/2016
Trade profit
Loss b/f
Total other
income
Loss c/y
Loss p/y
Less QCD’s
TTP
y/e
31/03/2017
Loss memo
Example 2
Checkers Ltd has unrelieved trading losses as at the 1 November 2014
of £1,900 and has losses for the year end 31 October 2015 of £14,500.
Checkers Ltd wish to carry forward losses and has the following
information on future forecasts of trading profits available:
Year end 31 October 2016 £10,000
Year end 31 October 2017 £16,000
Checkers Ltd also has £2,000 of other income every year and has £500
QCD’s every year.
Show how Checkers Ltd will use the trade losses available and any
unrelieved losses left to carry forward.
Example 2
y/e
31/10/2016
Trade profit
Loss b/f
Total other income
Loss c/y
Loss p/y
Less QCD’s
TTP
y/e
31/10/2017
Loss memo
Example 3
JJ Bush Ltd has the following information available regards its trading
over the last 4 years:
y/e 31 March 2014 £25,700
y/e 31 March 2015 £29,500
y/e 31 March 2016 £65,000 loss
y/e 31 March 2017 £8,300 estimated
JJ Bush Ltd has £2,000 other income a year and has £1,000 QCD’s
every year.
JJ Bush Ltd wants to obtain immediate loss relief. Show how the loss
will be utilised and any unrelieved trading losses to carry forward at the
31 March 2016
y/e
y/e
y/e
31/03/2014 31/03/2015 31/03/2016
Trade profit
Loss b/f
Other
income
Total
income
Loss c/y
Loss p/y
Less
QCD’s
TTP
Loss memo
Which relief to choose
In the previous example we learnt that losses are only carried back for
12 months.
A company can chose which relief they want to use, the reasoning
behind it is;
Current year / prior year:
•
•
Immediate loss relief
Aids cash flow
Carry forward:
• Tax saving if expecting large profits or tax rates increasing
Example 4
Green Acre Ltd has the following results for the last periods of account
y/e 31/03/2015
y/e 31/03/2016
Trade profit/(loss)
7,160
(14,900)
Gross interest received
5,000
5,000
Gift aid donations
19,000
18,000
It is company policy to act in the most tax efficient way.
Using the above information identify how Green Acre Ltd would claim
their loss relief.
Example 4
£
How much trading loss can be claimed against
income y/e 31 March 2016?
How much trade loss can be claimed against
income y/e 31 March 2015?
How much trade loss can be carried forward to
y/e 31 March 2017?
How much gift aid can be carried forward to y/e
31 March 2017?
Workings slide
Example 5
Amber Ltd has the following results for the last periods of account
y/e 31/03/2015
y/e 31/03/2016
Trade profit/(loss)
7,160
(14,900)
Gross interest received
5,000
3,000
Gift aid donations
1,000
500
Capital gain/(loss)
(4,000)
1,000
It is company policy to take immediate relief for losses.
Using the above information identify how Amber Ltd would claim their
loss relief.
£
How much trading loss can be claimed against
income y/e 31 March 2016?
How much trade loss can be claimed against
income y/e 31 March 2015?
How much trade loss can be carried forward to
y/e 31 March 2017?
How much gift aid can be carried forward to y/e
31 March 2017?
How much capital loss can be carried forward to
y/e 31 March 2016?
Workings slide
Questions
Thank you
Association of
Accounting Technicians
140 Aldersgate Street
London
EC1A 4HY