Please can anyone help? We have a Limited Company client who has the following results:
y/e 31/7/08 Profit £200,719
y/e 31/7/09 Profit £42,124
y/e 31/7/10 Profit £57,908
y/e 31/7/11 Loss £87,912
p/e 30/9/11 Loss £33,000
When I calculate the terninal loss relief claim, I end up with wasted losses. The claim is the loss for the final period £33,000 and 10/12 of the loss to 31/7/2011, £73,259. The remaining loss for 2011 I have carried back under general rules meaning that there is taxable profits remaining in 2010 of £43,255. The legislation says I have to use earliest terminal loss first, i.e. the £73,259 which I have set against 2010 (£43,255) and 2009 (£30,004). This mops up all the 2010 profit and leaves £12,120 in 2009. I then use my later terminal loss, of £33,000 and set this against those 2009 profits. Because of the 3 year rule, I then cannot utilise the remaining £20,880 (as they arose in AP commencing 1/8/2011 so can go back no further then 1/8/2008).
However, here is my dilemma. If instead, I amalgamate the final periods of trading to give me a fourteen month period, i.e. 1/8/2010 to 30/9/2011, with total losses of £120,912, my terminal loss is 12/14, i.e. £103,639. I carry back the remaining loss to 2010 (£17,273) leaving profits of £40,635. My terminal loss can then relieve all of this, plus the 2009 profits of £42,124, leaving unutilised terminal losses of £20,880 and I am now thinking that I can carry these back because the start of the AP is 1/8/2010 so my three year carry back goes to 1/8/2007? Even if I have to time-apportion this, I still have sufficient profits to mop up the loss. I can't find any examples of long final periods of account, only a year and then a final few months so not sure if we could do this? I would have discounted it out of hand but the HMRC manual CTM04520 intimates that in some cases, the claim can be four years and I'm wondering if this is what it refes to? It's £5K of CT at stake so I want to be certain, particularly as client in dire straits. Any comments would be gratefully appreciated as I just can't get my head around this!
Replies (8)
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Terminal loss relief
I'm with you on this one but not in terms of the long period of accounts...think this is a red herring.
You do not make it clear if these are all "trade" losses so need to be careful here and I am presuming so.....as you need to pool separate profits and losses trade, NTLR, property, gains etc
terminal loss relief is available on trade losses in final CAP 2m £33K plus 10/12 penultimate CAP so circa £72K. The 2/12 of the non terminal loss can used under the normal prior year loss relief claim rules, leaving total of £105K terminal losses.
This can be carried back 3 years from the start of the year ended 31/7/11.....so 3 years from 1/8/10 so 1/8/07 as you suggest. The 200K in 2008 should give you heaps of headroom.
Hope this helps
Not sure I follow
There are two CAPs.....a CAP cannot exceed 12 m so regardless of any period of accounts you would need 2 CAPs ...accounting period is defined in the legislation.
Terminal loss relief is available on last 12 months of losses so 10/12 of CAP1 and all of CAP2
Can't see how you would waste the last 2 months
Have I missed something?
Slightly better result
Lengthening the period of account gives a slightly better result. This is because the rate of loss-making in the final 2 months is greater than the preceding year. By lengthening, you are effectively shunting, through time-apportionment, some of the final 2 months' loss into the previous 12 months - which has the effect of allowing you to carry that little bit extra back a further year. My analysis is:
Of the £103,639 teminal losses, £17,273 falls within the period 1 Aug 11 to 30 Sep 11 and £86,366 falls within the period 1 Aug 10 to 31 Jul 11. There is also a 'normal' loss of £17,273 arising in the period 1 Aug 10 to 31 Jul 11. The important point is that the accounting period of the £86,366 begins on 1 Aug 10.
So, losses are used as follows:
£17,273 'normal' loss against 2009/10
£40,635 earlier terminal loss against 2009/10
£42,124 earlier teminal loss against 2008/09
£3,607 earlier teminal loss agianst 2007/08
The later terminal loss of £17,273 is lost (but better than losing £20,880)
To explain the 4 year point
Consider a company with a loss in the year ended 31 Dec 11 and a loss in the period to 30 Nov 12 (cessation). Part of the terminal loss arises in the accounting period beginning 1 Jan 2011 and so that could be carried back to the year 1 Jan 2008 to 31 Dec 2008 - effectively against profits that arose more than 4 years before the cessation date (1 Jan 2008 to 30 Nov 2008)