Losses carry forward to self employed

Losses carry forward to self employed

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Hi All,

One of my client who trades through Limited company now want to trade as self-employed. The nature of the business will be same. the reason for the change is to avoid too many administrative works and incurring losses and won be making any profits for at least next two years. My question is would it possible to carry the accumulated losses incurred under Limited company into his self-employed business and strike off the company? or else is it advisable to make the company dormant so as to preserve the company name and structure so that he can come back when he thinks he will make profit.

Many thanks 

Replies (18)

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By cheekychappy
02nd Aug 2015 13:39

Losses will be surrendered on disincorporation.

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Replying to Alex Falcon Huerta FCCA:
By johncharles
06th Aug 2015 09:39

I agree

cheekychappy wrote:
Losses will be surrendered on disincorporation.

Losses cannot be transferred from limited company to self employed business. Would be advisable, if the business is going to recover, to keep the company dormant. Why can't he make losses in the limited company and carry them forward against future profits? Surely the admin costs aren't that great.
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Replying to Paul D Utherone:
RLI
By lionofludesch
06th Aug 2015 16:45

Same Trade

johncharles wrote:

cheekychappy wrote:
Losses will be surrendered on disincorporation.

Losses cannot be transferred from limited company to self employed business. Would be advisable, if the business is going to recover, to keep the company dormant. Why can't he make losses in the limited company and carry them forward against future profits? Surely the admin costs aren't that great.

It's not the same trade.  It's a point made several times above.

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RLI
By lionofludesch
02nd Aug 2015 17:42

Lost

And if you make it dormant, you risk HMRC saying that you can't carry them forward because it's a different trade.

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Replying to atleastisoundknowledgable...:
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By [email protected]
03rd Aug 2015 07:48

Same nature of trade

lionofludesch wrote:

And if you make it dormant, you risk HMRC saying that you can't carry them forward because it's a different trade.

Why its going to be different trade if he comes back and involves in exactly the same nature of trade as it was pre dormant dormant status.

Thanks (1)
Replying to Mr_awol:
Stepurhan
By stepurhan
03rd Aug 2015 09:20

Cessation

<a href="mailto:[email protected]">[email protected]</a> wrote:
lionofludesch wrote:

And if you make it dormant, you risk HMRC saying that you can't carry them forward because it's a different trade.

Why its going to be different trade if he comes back and involves in exactly the same nature of trade as it was pre dormant dormant status.
It would not be the same trade. It would be a new trade doing the same thing. That is an important distinction with tax consequences. The only way it could be the same trade is to argue that the company continued trading (albeit not actually successfully selling anything) in the break. Running the business as a self-employment in the interim makes it clear there is a period where the company is not trading, so it is almost certain the losses would be wasted.

Based on this and previous questions, I would strongly advise you to do some serious CPD on limited companies. The very fact that you asked if the company losses could be carried over into a self-employed trade shows a lack of understanding of the fundamentals. The risk of doing your clients serious harm in this context is pretty high if you don't understand these things.

 

Thanks (3)
Replying to Wanderer:
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By [email protected]
03rd Aug 2015 12:10

Thank you for your reply. I know incorporated losses can not be carried forward into the self employed. I was checking with you guys to see if there any possibilities through any structure for my client to preserve 15k losses he suffered in the incorporation. by the time he came to me he has already closed his business bank account ( to save charges!!) and started advising his client that he is going to trade as self employed. What he is not realised is the relief he can get if he continue next two years through his company, after which he recon he will make profit. 

Yes I misunderstood starting trading again after period of dormant may not be the same trade for HMRC for b/f tax losses. I was thinking if the usual case law of kirk & Randall Ltd vs Dunn in these circumstances will apply, if he keeps the incorporation without dormant status but continue with minimum activities such as director meetings and few business expenses I know the continuation of the business is very subjective from HMRC point of view. any suggestions?

Many Thanks 

  

 

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Replying to richard thomas:
Stepurhan
By stepurhan
04th Aug 2015 09:05

Misunderstanding?

<a href="mailto:[email protected]">[email protected]</a> wrote:
Thank you for your reply. I know incorporated losses can not be carried forward into the self employed.
Sorry, I must have misunderstood you when you titled your query
Title wrote:
Losses carry forward to self employed
and when you said in your OP
OP wrote:
My question is would it possible to carry the accumulated losses incurred under Limited company into his self-employed business and strike off the company?

Perhaps you could explain what you meant by these, given you knew the losses couldn't be used in this way. Probably not a lot of point in offering further advice until this matter is cleared up.

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Replying to paulwakefield1:
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By [email protected]
05th Aug 2015 12:37

Preserving tax losses

Perhaps my question should have been, how may client preserve his 15k tax losses he incurred in his LTD company. My advise would be to keep trade though the LTD by opening a new bank account to preserve the tax losses. What would be the advice be if you come across this situation.

Many thanks for the comments!

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Replying to Mr_awol:
RLI
By lionofludesch
03rd Aug 2015 10:00

Nature

<a href="mailto:[email protected]">[email protected]</a> wrote:
lionofludesch wrote:

And if you make it dormant, you risk HMRC saying that you can't carry them forward because it's a different trade.

Why its going to be different trade if he comes back and involves in exactly the same nature of trade as it was pre dormant dormant status.

Same kind of trade but not the same trade, I'm afraid.

Thanks (1)
By JCresswellTax
03rd Aug 2015 09:27

I don't want to gang up

But I agree with stepurhan.

Your last post on this thread shows a clear lack of the most basic of tax knowledge.

Be very careful...

Do you mind if I ask if you are employed or self-employed?

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RLI
By lionofludesch
03rd Aug 2015 13:30

Not for me

It's not for me, I'm afraid.  Trading's more than incurring a few expenses and holding the occasional director's meeting.

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By JCresswellTax
04th Aug 2015 09:16

He is trying to cover his tracks

By claiming he already knew the answer! 

Honesty is the best policy and this poster is not being honest about his knowledge.

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RLI
By lionofludesch
06th Aug 2015 09:30

Keep trading

The only way to retain the losses is to continue trading.  The reality seems to me to be that the company has already ceased trading but this will very much depend on the facts.

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Replying to Tax Dragon:
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By User deleted
06th Aug 2015 16:50

Maybe

lionofludesch wrote:

The only way to retain the losses is to continue trading.  The reality seems to me to be that the company has already ceased trading but this will very much depend on the facts.

 

 

Maybe they only 'fell out with their bank manager' ?

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Replying to ireallyshouldknowthisbut:
RLI
By lionofludesch
07th Aug 2015 09:51

Facts

BananaMan wrote:

lionofludesch wrote:

The only way to retain the losses is to continue trading.  The reality seems to me to be that the company has already ceased trading but this will very much depend on the facts.

Maybe they only 'fell out with their bank manager' ?

It very much depends on the facts.

But I wouldn't be making up new facts if the old facts don't fit.

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Replying to atleastisoundknowledgable...:
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By User deleted
07th Aug 2015 12:16

.

lionofludesch wrote:

BananaMan wrote:

lionofludesch wrote:

The only way to retain the losses is to continue trading.  The reality seems to me to be that the company has already ceased trading but this will very much depend on the facts.

Maybe they only 'fell out with their bank manager' ?

It very much depends on the facts.

But I wouldn't be making up new facts if the old facts don't fit.

 

I'm not sure what you're getting at.

 

The only fact I remember reading is the fact that they have closed their bank account

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RLI
By lionofludesch
08th Aug 2015 09:11

Fair enough

Fair point. It's not clear whether the trader has started trading on his own account or not.

But it does depend on facts which we don't have.

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