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Company losses carried forward query

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I have a question to do with company trading losses brought forward.

I have just been speaking to my accountant and I am a bit confused.

My Ltd company had losses brought forward from the previous accounting years of £23,000 to offset against future profits. My accountant has my 18/19 company accounts in draft for my company year end March 2019.

This year, my company made a profit of £15,000. My accountant has said that all the losses brought forward have to be used and no remaining losses can be carried forward to use against the March 2020 accounts profits, is this correct? Now, I am not an annoying client who questions everything a trained professional says, but it doesn't make sense the remaining £8,000 of the loss just disappears. I can find no evidence this is the case and when I was a sole trader I certainly had losses carried forward 2-3 years to offset against trading profits.

In summary, my accountant has said the £23,000 loss carried forward, take away the £15,000 March 2019 profit leaves an £8,000 loss that can't be carried forward to ofset profits in the March 2020 accounts?

Any advice would be appreciated.

Thanks in advance

 

 

 

Replies

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12th Jul 2019 11:55

Unless there are factors you've not disclosed, it's rubbish.

Check that you've not misunderstood your accountant. If you haven't, start looking elsewhere.

However, as an aside, I should say there are several situations where, as a sole trader, you are unable to get effective relief for your losses as they often interact with personal allowance. Which makes dealing with sole trader losses much more tricky.

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to lionofludesch
15th Jul 2019 09:29

lionofludesch wrote:

Unless there are factors you've not disclosed, it's rubbish.

Check that you've not misunderstood your accountant. If you haven't, start looking elsewhere.

However, as an aside, I should say there are several situations where, as a sole trader, you are unable to get effective relief for your losses as they often interact with personal allowance. Which makes dealing with sole trader losses much more tricky.

Thanks for your input.

I am always open and honest, I sleep well at night and would like to keep it that way. I also have a part time book keeper who does a cracking job.

I double checked and an email from my accountant said "You must use all carried forward losses from previous years' accounts to 'write off' the profit and no losses are carried forward to next year. This will be good because you can draw dividends next year."

I definitely have £23,000 losses brought forward. Well, £23,251 losses brought forward.

Absolute codswallop yes?

Many Thanks

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to For_Science
15th Jul 2019 09:36

Be old fashioned. Use the phone.

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to For_Science
15th Jul 2019 09:46

For_Science wrote:
......and an email from my accountant said "You must use all carried forward losses from previous years' accounts to 'write off' the profit and no losses are carried forward to next year. This will be good because you can draw dividends next year."

I definitely have £23,000 losses brought forward. Well, £23,251 losses brought forward.

Absolute codswallop yes?

Many Thanks

Well, two points.

Firstly, as noted below, accounting profit and taxable profit are two different things. This year's accounting profit may be £15,000 but the taxable profit may be £23,000+. You need to check this.

Secondly, your ability to draw dividends has bu99er all to do with your taxable profit and the use of losses and everything to do with your accounting profits, including any not distributed in earlier years.

You need a chat with your accountant.

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12th Jul 2019 11:59

For_Science wrote:

I have just been speaking to my accountant and I am a bit confused.

Any advice would be appreciated.

Get a new accountant.

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12th Jul 2019 12:16

Before you get a new accountant, talk to your existing one. There's a high chance that this is a (simple) miscommunication/misunderstanding.

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12th Jul 2019 13:00

£15,000 accounting profit or tax adjusted profit?

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to SpaceDuck
15th Jul 2019 09:21

SpaceDuck wrote:

£15,000 accounting profit or tax adjusted profit?

My apologies, this is my bottom line. Net profit.

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to For_Science
15th Jul 2019 09:38

Then you need to look at your tax adjusted profit (& your tax adjusted loss for the previous year). And also whether any part of those tax adjusted losses were carried back or otherwise utilised.

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to Wanderer
15th Jul 2019 10:11

^ This.

The thanks the accountant gets for utilising losses is his (or her) client comes in here and wonders where the losses have gone. (And it's sad that the immediate response is "get a new accountant".)

OP, you won't get your answers in here, you'll get them from your accountant. Call him/her.

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to Tax Dragon
15th Jul 2019 10:42

Tax Dragon wrote:

^ This.

And it's sad that the immediate response is "get a new accountant".

There's no need to get a new accountant yet.

There's scope for misunderstanding here. Few laymen will understand the distinction - and significance - between accounting and taxable profit.

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to Tax Dragon
15th Jul 2019 16:31

Thanks for your input,

I have been trading my Ltd company for around 3 and a half years, (this is my third set of accounts) I invested heavily in the first 2 years and in both years made a loss and the losses were carried forward. I am now in a good profitable position with business outlook very good.

I have spoken to my accountant on numerous occasions, on the phone and lengthy email conversation.

I have extracts from an email stating: "The losses brought forward offset your profit and the remainder of the loss can't be carried forward to the next year as it's just written off."

I did ask her reasoning in regard to the losses being 'written off', and the reply was "This is standard practice. When a loss is brought forward and the loss is greater than the profit, all the profit is offset and the remaining losses are written off."

My reply was "Thank you for your timely reply, just to help my understanding, I have £15,007 profit this year to be offset by £23,251 losses, which will leave a loss of £8244 which is written off and effectively takes the P&L carried forward figure to £0?"

Her reply. "Yes, that is correct. Can you please sign the draft accounts and return them to me as soon as possible for filing."

I put this post out there because this "standard practice of writing off a loss" just makes no sense at all to me, I have 'researched' losses brought forward but haven't found any material which states this as the correct treatment, but as I am well aware, tax legislation is significantly vast and I could very easily be missing something.

I have read some fantastic posts and exceptional replies from very knowledgeable and experienced forum users previously, who do have far superior knowledge and experience than I do and know about the finer details in the tax legislation.

I was just asking for opinions and general input from more knowledgeable users, not going on a forum "witch hunt"

With Regards

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to For_Science
15th Jul 2019 16:37

Based on what you have said, your accountant is talking rubbish, get a new accountant.

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to For_Science
15th Jul 2019 16:39

That more detailed background explanation (combined with the dividend comment - as Lion said, that seems a non-sequitur) does make me wonder about the competence of your accountant.

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to Wanderer
15th Jul 2019 16:40

Wanderer wrote:

Then you need to look at your tax adjusted profit (& your tax adjusted loss for the previous year). And also whether any part of those tax adjusted losses were carried back or otherwise utilised.

Thank you for your input, Wanderer.

I have obtained a set of draft accounts from my accountant.

The operating Profit is £15,007

Profit on activities before tax is £15,007 as is Profit on activities after tax.

Retained profit for the year £15,007

Retained Loss brought forward £23251

Retained Profit or Loss Carried forward £0

I have been trading the Limited Company for approximately 3 and a half years to date and this is my first year turning a profit, in my third year of trading. In the previous 2 years the losses were carried forward to this company year. I did invest heavily in the first 2 years and business outlook is currently very promising.

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to For_Science
15th Jul 2019 16:49

For_Science wrote:

Retained profit for the year £15,007

Retained Loss brought forward £23251

Retained Profit or Loss Carried forward £0

This is accounting profit which is different from tax adjusted profit. Accounting profit affects dividends, tax adjusted profit affects tax.
If you draft accounts show what you have said then this again is absolute rubbish.
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to For_Science
15th Jul 2019 17:04

Hm.

I am no longer wondering.

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to For_Science
15th Jul 2019 17:04

For_Science wrote:

The operating Profit is £15,007

Profit on activities before tax is £15,007 as is Profit on activities after tax.

Retained profit for the year £15,007

Retained Loss brought forward £23251

Retained Profit or Loss Carried forward £0

Jaysus - that's worse rubbish than I expected ! The lass is trying to blind you with science, if you'll pardon the pun.

Where did the other £8244 in losses go ? Do the accounts balance ? The one thing layman expect accountants to be able to do is add up, take away, times and share.

Time to seek a second opinion, I think.

Whatever you do, don't sign off those accounts or the related Corporation Tax return. Or pay her.

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to lionofludesch
15th Jul 2019 17:13

lionofludesch wrote:

The one thing layman expect accountants to be able to do is add up, take away, times and share.

Isn't that four things? :-)

If there was just one thing, it'd be to know whether two numbers are the same. As you say, how does anything balance here?

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to Tax Dragon
15th Jul 2019 17:15

Tax Dragon wrote:

The one thing layman expect accountants to be able to do is add up, take away, times and share.

Arf, arf.

I've amalgamated them under the collective of "arithmetic".

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to lionofludesch
16th Jul 2019 13:46

When did we start calling "multiply" and "divide" "times" and "share"? Are you perhaps Benjamin Button, just reached primary school?

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to Vile Nortin Naipaan
16th Jul 2019 17:15

Vile Nortin Naipaan wrote:

When did we start calling "multiply" and "divide" "times" and "share"? Are you perhaps Benjamin Button, just reached primary school?

The senior partner of my first accountancy employer said to me on my first day, "As long as you can add up, take away, times and share, you'll be grand."

It's always stuck with me.

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to lionofludesch
16th Jul 2019 13:48

Credit sales £8,244 to balance and move on. Life's too short for such problems.

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15th Jul 2019 17:50

@ For_Science do you have a copy of the Corporation Tax Computation? Or if not the Corporation Tax Return?

We’re looking for:
1. Taxable profit for the year
2. Tax losses brought forward

EDIT:
Would be interesting to know the above, but just see the posts about the £23k accounting loss add £15k accounting profit equalling £nil.

What the hell has she done with the other £8k?

There wasn’t another company that gave you £8k was there as a ‘capital contribution’?

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to atleastisoundknowledgable...
15th Jul 2019 18:32

Reading all their posts I don't think the OP has been looking at the tax loss at all. Think they've been talking about the accounting position only.

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to Wanderer
15th Jul 2019 18:45

But as has been pointed out the accounting treatment is just as nonsensical.

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to Wanderer
15th Jul 2019 18:47

Wanderer wrote:

Reading all their posts I don't think the OP has been looking at the tax loss at all. Think they've been talking about the accounting position only.

Wouldn't surprise me. I said earlier that laymen don't understand the difference.

It's still wrong, though.

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to Wanderer
16th Jul 2019 08:53

Wanderer wrote:

Reading all their posts I don't think the OP has been looking at the tax loss at all. Think they've been talking about the accounting position only.

I was just wondering whether the OPs (on the face if it) carp accountant was (worryingly) getting herself confused somehow.

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to atleastisoundknowledgable...
16th Jul 2019 09:06

atleastisoundknowledgable... wrote:
<

I was just wondering whether the OPs (on the face if it) carp accountant was (worryingly) getting herself confused somehow.

How confused do you have to be to think £15k - £23k is zero ?

And where did the £8k go ?

But I agree that the OP doesn't seem to grasp that tax losses aren't the same as accounting losses.

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to lionofludesch
16th Jul 2019 13:19

“How confused do you have to be to think £15k - £23k is zero ?”

I meant by mixing her figures. Maybe accounting losses b/f, CY tax profit ... agree given her emails it seems it’s far more likely that she just doesn’t have a clue and is costing her clients £000s in unclaimed losses.

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16th Jul 2019 09:07

You don’t really have any option other than to pay a second accountant to review your last 3 years accounts and returns. If (as seems very possible) your current accountant is incompetent then there are likely to be many issues and knowing this now is better than finding out down the line. If a new accountant does find issues then you can seek to recover the fees paid to your current accountant. Is your current accountant part of a professional body?

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