Terminal loss relief

Terminal loss relief

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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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By eastangliantaxadvisor
09th Aug 2012 20:12

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!

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By thomas.peterson
13th Aug 2012 09:33

Hi

Thanks, but the book I've been reading from says "The terminal loss includes the whole of any unused overlap relief", so I'm confident that the overlap relief is useable as for any other loss.

Just to alter my figures, lets instead say

01/01/11 - 31/12/11 - Profit of £10,000

01/01/12 - 30/06/12 - Profit of £15,000

Unused overlap £50,000

 

So the choice as I see it is to either take the net profit of £35k and apportion it per the terminal loss workings (availiable loss of 86/181 x £35,000 = £16,629; carry back £10k, £6,629 availiable for earlier 2 years), or whether the overlap relief comes in after the apportionment, in which case it is availiable in full (use £15k, carry back £10k, £25k left to use in the 2 earlier years).

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By David Massey
13th Aug 2012 17:42

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

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By eastangliantaxadvisor
13th Aug 2012 21:02

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))

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