Underlying Tax

Underlying Tax

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UK company has loss c/fwd from previous years. In the last tax year it received dividends from its overseas subsidiary. The dividends come with underlying tax credits which is enough to bring the UK corporate tax liability to NIL.

My question is whether I can apply the double tax relief (underlying tax relief) here and leave the loss to be carried forwarded to next year?

or

Is it necessary to use up the loss first which will also wipe off the taxable income but will result in losing the underlying tax?

Any comments will be greatly appreciated

L Rob

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By Abraham2001
09th Sep 2008 16:45

Many thanks............
....for your comment

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By AnonymousUser
09th Sep 2008 16:18

For companies...
....brought forward trading losses have to be claimed before they offset current year profits. So the offset is not automatic. If no claim is made there is no offset and the brought forward losses get carried forward. See s 393A TA 1988.

So, to utilise your foreign tax credits, just don't make a claim to offset your brought forward trading losses against current year profits. The foreign tax credits can then be used against the corporation tax on current year profits.

But the same does not apply to brought forward losses of investment companies generated by excess management expenses, charges etc. These are automatically set against current year profits so waste of foreign tax credits may result, despite the relief provided by s797 TA that allows the company to allocate such losses in the most beneficial way.

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