Hi all
I'm having a bit of trouble with a terminal loss calculation. I've read the examples but all the ones I've seen have been based on a pre overlap loss in the final period, whereas in my case it is a profit that becomes a loss once overlap is taken off.
When apportioning between the 2 periods (pre and post 5 April) should I be apportioning the post overlap loss or should I be apportioning the pre overlap profit, converting it to nil (as it is above 0) and then taking the full overlap off?
I'm leaning towards the later, in which case the post April calculation will just be the overlap and I can then carry that back 3 years (presumably starting with the profit in the final period)?
So say:
01/01/11 - 31/12/11 - Profit of £10,000
01/01/12 - 30/06/12 - Profit of £15,000
Unused overlap £20,000.
No matter how you split the £10,000 and £15,000 they will always be more than zero, so nil. £20,000 to carry back, £15,000 to nil, £10,000 to £5,000
Replies (4)
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I think the answer is:-
REVISED answer-
I am not too sure but this is my guess!
SO accounts are o 31st December 2011
Accounts profit tax year ended 5th April 2012 = £10,000
Accounts period ended 30th June 2012 = £15,000
Final profit is the £15,000.
Overlap does not generete a terminal loss - so there is a loss avaBILE for offset in normal way of
SO 2012/13 tax year = Loss of £5,000 for offset in normal way i.e year of loss or previous year!
Section 90(4) ITA 2007
Like Mr Wallace, I'm a bit rust with this, but as I understand it you need to split the final 12 months of trading into two and look at each period separately:
the period between 6 April and the date trading ceasedthe balance of the final 12 months falling before 5 April
Any overlap relief is attributed in full to period 1.
So in your revised example the terminal loss arising in period 1 would be your overlap relief of £50,000 reduced by the profits for the period (£15,000 x 86/181 = £7,127): giving you potential terminal loss relief of £42,873.
You have a profit for period 2 (the 284 days up to 5 April 2012) so no terminal loss relief will arise in that period, but you do not need to aggregate the profit/losses for the two periods so you still have a terminal loss of £42,873.
This would be relieved:
2012-13 £ 7,873 (to reduce profits for that year to nil)2011-12 £ 10,000 2010-11 up to £ 25,000 2009-10 balance not used in 2010-11
So the loss relief is available in full (as you suggest in your second alternative).
In a case like this (where the loss only arises because of the overlap relief) you can probably dispense with the detailed calculation and just take it that the relief is potentially allowable in full; but I always find it useful to work through the detailed rules now and again to reassure myself as to why this is the right answer because I can guarantee that the next time the question crops up it will be the where the general rule-of-thumb won't guide me to the right answer.
David
David
just read the legilsation and you are correct
If as a result of section 205 of ITTOIA 2005 a deduction is allowed for overlap profit in calculating the profits of the trade of the final tax year, that deduction is to be made in calculating the loss (if any) mentioned in subsection (1)(a) (and is therefore irrelevant for the purposes of subsection (1)(b))