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Terminal Loss

Memory Lapse

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It's ages since I did a Terminal Loss claim and I'm blessed if I can remember how the profit in the last twelve months is calculated.

The scenario is (rounded up a bit)

Year to 31 August 2019             £ 12000

Loss to 31 May 2020                 £(8000)

Is the loss in the last twelve months £ 8000 - ¼ of £  12000 = £  5000 ?

Or is the period June-Aug 2019 counted as nil and the loss is £  8000 - ¼ of nil  =  £  8000 ?

I thought it was Option 1, but now I'm talking myself out of it.

 

Replies (12)

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By The Dullard
12th Apr 2021 19:05

Neither.

Assuming you're talking unincorporated, what the legislation says is that you calculate:
- a profit or loss for the period 6 April 2020 - 31 May 2020 => £8000 x 2/9ths = £1,778, and
- a profit or loss for the period 1 June 2019 - 5 April 2020 => £8,000 x 7/9ths - £12,000 x 5/12ths => £6,222 - £5,000 = £1,222.

The terminal loss is the (total of the) one(s) that is a/are loss(es). That is £3,000.

ITA 2007, s 90.

Thanks (1)
Scooby
By gainsborough
12th Apr 2021 21:18

Agree with Dullard's analysis (as usual!), although I make the first column (£3222) as it should be 3m/12m x £12K 1.6.19-31.8.19. Then increase the post 6.4.20 part (£1778) by any overlap.

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Replying to gainsborough:
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By The Dullard
13th Apr 2021 09:12

Yes. My maths isn't so good. I was expecting to end up at Lion's £5,000, in total, and couldn't see why I wasn't.

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RLI
By lionofludesch
13th Apr 2021 06:21

Thanks both and especially for the citation.

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By Tax Dragon
13th Apr 2021 09:49

An honest query (following up on my weird walk down paradigm path the other day)... Lion says he'd be blessed if he could remember the rules... but how much should we rely on memory of things past for our current work/computations? (Not only does memory fade, but rules change - sometimes quite fundamentally.)

How much do we?

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Replying to Tax Dragon:
By Duggimon
13th Apr 2021 09:56

I check things I'm sure I know all the time, I have very little faith in my memory. I would say 95% of the time if I thought I already knew something then I'm proved right, and that 5% when I'm not definitely makes it worth checking every time.

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Replying to Tax Dragon:
RLI
By lionofludesch
13th Apr 2021 10:02

Tax Dragon wrote:

An honest query (following up on my weird walk down paradigm path the other day)... Lion says he'd be blessed if he could remember the rules... but how much should we rely on memory of things past for our current work/computations? (Not only does memory fade, but rules change - sometimes quite fundamentally.)

How much do we?

In fairness, I probably shouldn't have relied on memory for something I hadn't done for so long. Something I did last week would be grand.

The loss relief rules, however, are basically unaltered from at least ICTA 1970. There was a change when self assessment came in and capital allowances were subsumed into profits, rather than being a separate relief. The old system was great because you could sometimes leave a balancing charge in the final year to soak up personal allowance, whilst carrying back a loss under section 168 (to prior year) or section 174 (terminal loss). These tricks of the trade are sadly missed.

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Replying to lionofludesch:
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By Tax Dragon
13th Apr 2021 10:54

lionofludesch wrote:

The loss relief rules, however, are basically unaltered from at least ICTA 1970.

Even so, if it's all the same to you, when I need to know how to calculate a terminal loss, I'll look at ITA 2027.

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Replying to Tax Dragon:
By SteveHa
13th Apr 2021 10:55

We are currently starting to build an internal library of oft-encountered technical queries and answers/solutions. One of the points I'm driving home is the need to document the legislation/tax cases etc. used to arrive at the library content so that it can be checked in the future to make sure it's still relevant. It's easier to remember what you did than to remember why it may no longer apply.

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By Michael Davies
14th Apr 2021 09:49

How do you propose to make the claim ? I submitted my clients last August and while the “current” year refund was processed really quickly;still waiting on previous years.Silly me I submitted the claim as an attachment and white space entry.When I eventually got through to HMRC ,I was told their algorithms don’t recognise these.Now with HMRC complaints;but still no action.
Be interested to know how everyone else submit these types of claims .

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Replying to Michael Davies:
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By The Dullard
14th Apr 2021 10:10

Michael Davies wrote:

Be interested to know how everyone else submit these types of claims .

Correctly?

Michael, meet para 2 of Sch 1B, TMA 1970. Para 2 of Sch 1B, TMA 1970, meet Michael.

There are no "past years", it is all a current year claim, based on what would have been if the past years had been amended.

I'd suggest making a rectified amendment to the return would be more expeditious than a complaint, where you're going to be told that it's because you dealt with it incorrectly.

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Replying to The Dullard:
Scooby
By gainsborough
14th Apr 2021 15:46

Submitted an amendment online early November for TLR, chased by letter in January. Client received refund this week - so roughly a 5 month wait at the moment.

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