Continuing losses

Continuing losses

Didn't find your answer?

A Ltd company that used to make modest profits has for the last few years incurred losses although there is no income. The losses have occured through such expenses as phone, travel etc and are not excessive. The directors insist that they are looking for income and always expect it to come to fruition 'next year'. The industry they are in is fairly specialised so it is likely that there will be sales in the future. What I'm wondering is, are HMRC liable to ask questions if this company continues to carry forward losses and is there a time limit that they can do this for.

Thanks - not something I've come across before.

Replies (3)

Please login or register to join the discussion.

avatar
By tringyokel
23rd May 2011 09:08

No time limit but ...

 I'm very far from an expert but I believe losses can be created and carried forward for as long as the company is trading.

So the problem is to prove the company is actively seeking income.  The longer this goes on with nothing coming in the more I would expect HMRC to require in evidence to confirm that there is still an expectation of future income.

I seem to remember a case (but not the name, unfortunately) where a company had no income for six years but was still considered to be trading.

Thanks (0)
avatar
By bernard michael bayly
23rd May 2011 09:08

Continuing lossses

How are they funding the expenses? if it is by external cash injections eg directors/shareholders/investors you shouldn't have any problems provided it can be evidenced to HMRC (if asked) that they are looking for work. If they are funding expenses by additional company borrowing watch out for "trading whilst knowingly insolvent" problems

Thanks (0)
avatar
By zebaa
23rd May 2011 09:50

Support

As the company may be insolvent the directors should give a statement of support in the accounts. This could be something like ' the losses incured are supported by loans from directors. The directors have agreed they will:

(choose 1 option)

A) not call in these loans over the next 12 months .

B) support the company with loans over the next 12 months.

In case A they could refuse to provide more funds - and liquidate the company - or not, but there is always that option if things get worse. While case B may provide, in essence, unlimited liabilaty, which could comfort suppliers.

Thanks (0)