Accounting for CT losses carried forward

Correct treatment in the current period for the use of a CT loss carried forward

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If accumulated profit in a company is reduced as a result of a number of years of losses then how can the use of loss carry forward be accounted for in accounts. My understanding is that you do not account for losses carry forward and details are maintained on a separate schedule. Then when current year Net Profit is reduced by loss carried forward what is the accounting for this. Your P&L is effectively being debited but what is credited to balance this out.

 

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By David Ex
29th Sep 2021 22:54

Thanks for letting us know.

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By SXGuy
30th Sep 2021 07:36

Corporation tax is both a P and l and a balance sheet entry, so when adding losses what do you think happens to both of those?

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By Duggimon
30th Sep 2021 10:00

You don't account for the losses carried forward in your accounts, they're already in there in your retained profit/loss.

The losses carried forward for your tax return just go on the tax return.

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paddle steamer
By DJKL
30th Sep 2021 10:59

Tax losses b/fwd reduce the liability for the year they are used. Accordingly the Dr CT (P&L) and CR CT (Liability) posting will be less than it would have been had they not been used.

If I was preparing the reconciliation note re the tax charge in the accounts I would show tax on profits for the year at 19% and show the use of losses as a line of analysis (as I would say depreciation) that explains why the tax charge is not just 19% of the accounts profit, but that is all, there would be no distinct journal re their use.

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Flag of the Soviet Union
By thevaliant
30th Sep 2021 11:02

It's a deferred tax asset, if you're not under FRS105 (though you could I suppose).

Bring back the flow through method.

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