Share this content
22

Terminal loss relief - is my client losing out? S89 relief

Terminal loss relief - is my client losing out?...

Didn't find your answer?

  • Jane's normal accounts made up to 31 December.
  • She closed her business 30 September 2015, final 21 months loss is £21,000
  • Her terminal loss, final 12 mths is 12/21 x £21,000 = £12,000
  • She will have other income in 2015/16 and so would like to make a Section 64 claim for the 2015/16 loss against the 2015/16 general income.

I have considered making a S64 claim for 2014/15 loss to be carried back to 2013/14 but the tax involved is not attractive.

My concern is:

  1. If I claim the terminal loss relief of £21,000 then it was computed as if the final 12 months of trading. This appears to prevent me using the 2015/16 loss (final 6 months April to September 2015) against the general income 2015/16.  The loss appears to be based on the same period.
  2. There appears to be wasted loss relief of £21,000 less £12,000 = £9,000.

I know one cannot claim a loss more than once, but it seems harsh that on a loss of £21,000 a large part may be wasted.  

HMRC manuals BIM85080, 85055 and 85015 do not appear to answer my point, nor does online research.

Replies (22)

Please login or register to join the discussion.

Portia profile image
By Portia Nina Levin
20th Mar 2016 12:36

Here is the problem

ARAFVH wrote:

2. There appears to be wasted loss relief of £21,000 less £12,000 = £9,000

ARAFVH wrote:

I have considered making a S64 claim for 2014/15 loss to be carried back to 2013/14 but the tax involved is not attractive.

Why are you preparing accounts for a 21 month period?

Thanks (1)
avatar
By ARAFVH
21st Mar 2016 09:18

I am preparing accounts for a 21 month period as the business has ceased and this is what the client wants, rather than pay for two sets of accounts.  However even if I had a 12 month account followed by a 9 month one, the problem remains.

Thanks (0)
RLI
By lionofludesch
21st Mar 2016 09:29

18 months max

ARAFVH wrote:

I am preparing accounts for a 21 month period as the business has ceased and this is what the client wants, rather than pay for two sets of accounts.  However even if I had a 12 month account followed by a 9 month one, the problem remains.

That's great.  How will you deal with HMRC's 18 month limit on accounts ?

Your client may have to pay for three sets of accounts, the original 21 - and then a 12 and a 9.

Thanks (2)
Portia profile image
By Portia Nina Levin
20th Mar 2016 12:36

Bugger[***]
So good I said it twice.

Thanks (1)
RLI
By lionofludesch
20th Mar 2016 16:11

Economical with the information.

Splitting the period up may help.  The loss may not accrue evenly.  In any case, I'm always reluctant to have a period cross two tax year ends as there can often be surprising consequences.

The big unknown is what other income Jane has to set the loss against.

The truth is that lots of people lose the benefit of losses because the income's already covered by personal allowances.   It's not at all uncommon.

 

Thanks (1)
avatar
By ARAFVH
21st Mar 2016 09:20

Jane has other income in 2015/16 of about £30K, but to claim no terminal loss relief would not give her the best result.

Thanks (0)
RLI
By lionofludesch
21st Mar 2016 09:31

Pulling teeth ....

ARAFVH wrote:

Jane has other income in 2015/16 of about £30K, but to claim no terminal loss relief would not give her the best result.

And 2013/14 and 2014/15 ?

Thanks (0)
avatar
By ARAFVH
21st Mar 2016 09:56

Answers for lionofludesch

I am not aware of an 18 month limit on self-employed accounts and cannot see one in a quick online search.  Of course there is one for limited companies.

 

Other income 2014/15 is dividends £20K and say £2K rent.  Other income 2013/14 is self-employment (the main source where the terminal loss arises), dividends £20K and £2K rent

Thanks (0)
RLI
By lionofludesch
22nd Mar 2016 09:26

Why didn't you say ?

ARAFVH wrote:

Other income 2014/15 is dividends £20K and say £2K rent.  Other income 2013/14 is self-employment (the main source where the terminal loss arises), dividends £20K and £2K rent

Apologies.  Was that a secret ?

Thanks (0)
Stepurhan
By stepurhan
21st Mar 2016 10:01

Here's an example

You must have been using the wrong search terms. Here is a reference to the 18 month limit.

http://www.hmrc.gov.uk/manuals/camanual/ca11510.htm

Thanks (0)
avatar
By ARAFVH
21st Mar 2016 10:22

Accounts and periods of account

Thanks for sending that link.  There is nothing preventing preparing a set of accounts for longer than 18 months, but if you do then periods of account need to be worked out.  I quote from the link you kindly sent:

"If accounts are drawn up for a period that is longer than 18 months you should split the period for which the accounts are drawn up into separate periods of accounts."

Thanks (0)
RLI
By lionofludesch
21st Mar 2016 13:56

Interpretation

ARAFVH wrote:

Thanks for sending that link.  There is nothing preventing preparing a set of accounts for longer than 18 months, but if you do then periods of account need to be worked out.  I quote from the link you kindly sent:

"If accounts are drawn up for a period that is longer than 18 months you should split the period for which the accounts are drawn up into separate periods of accounts."

Interpret that as you will.

Thanks (1)
Portia profile image
By Portia Nina Levin
21st Mar 2016 10:28

I agree with the OP that there is no requirement for accounts to be prepared for a period of 18 months or less. Where the period is more than 18 months you divide it into 12 months, plus any residual, periods.

However, given the veritable deluge of information and the "cost-consciousness", neither the OP nor their client seems inclined to go to the trouble of getting the best result, so I am out.

Thanks (1)
Hallerud at Easter
By DJKL
21st Mar 2016 10:44

If you look at the basis period for 14/15 I think you will spot the balance of your losses

You have prepared accounts to 31.12.13 which have a profit and are the basis period for 13/14, the profit you are seeking to offset as its offset presumably triggers tax repayment. (As the rentals are likely already covered by personal allowances and the dividends bring no tax repayment)

You have then prepared accounts to 30/9/15 and 15/16 is your year of assessment re cessation.

Given your accounts run > 18 months you have some hoops to jump through to compute 14/15 basis period, but I suspect (I have not computed)  the balance of losses outwith the terminal loss will  arise within 14/15. but as this loss will offset other income 14/15 before carry back if will merely relieve a little rental and the rest wastes itself against dividends.

Given the dividends received each year I think the losses are going to be of little avail, 15/16  terminal will mop up the rent and some dividends, 14/15 likewise, but as the claims are not restricted (all income gets relieved) I see nothing available to get back into 13/14 from 14/15, in effect the personal allowances for both years get part wasted.

Have you looked at any overlap relief  b/fwd  that can be relieved (augment TL) upon cessation?

Thanks (1)
avatar
By ARAFVH
21st Mar 2016 12:23

Thanks DJKL

Thanks for your detailed consideration.  Sadly the overlap relief figure in the case is nil, so no joy there.  Looks like I have no good news for the client who thinks they will get relief on everything.

Thanks also to the other contributors for thinking about this matter.

Thanks (0)
Hallerud at Easter
By DJKL
21st Mar 2016 14:44

They will get relief

ARAFVH wrote:

Thanks for your detailed consideration.  Sadly the overlap relief figure in the case is nil, so no joy there.  Looks like I have no good news for the client who thinks they will get relief on everything.

Thanks also to the other contributors for thinking about this matter.

They will get loss relief but the relief will be mainly used up against the dividends  so frankly of little financial value. If the other income had not been dividends things would have been fine as to feeling one was getting vfm.

Thanks (1)
RLI
By lionofludesch
21st Mar 2016 17:59

Dividends

Looking at the taxpayer's other income, she hasn't paid any tax that can be repaid.

This was always a non-starter.

Thanks (0)
avatar
By ARAFVH
22nd Mar 2016 08:48

not a non-starter

It is wrong to say the client has paid no tax to be repaid.  She had tax bills in 2012/13 and 2013/14 on trade profits which can benefit from terminal loss relief.

She has expected £30K pension income in 2015/16 which can potentially benefit from sideways relief.

Thanks (0)
Stepurhan
By stepurhan
22nd Mar 2016 10:12

Anything else?

ARAFVH wrote:

It is wrong to say the client has paid no tax to be repaid.  She had tax bills in 2012/13 and 2013/14 on trade profits which can benefit from terminal loss relief.

She has expected £30K pension income in 2015/16 which can potentially benefit from sideways relief.

If you want a sensible answer, you should be providing information like this at the start, not after multiple prompts. Is there anything else relevant you have not got around to telling us?
Thanks (0)
avatar
By ARAFVH
22nd Mar 2016 12:38

The OP asks all I wanted to know and says all I needed to say

stepurhan asks if there is anything else.  I have to say that I think my original post said all that I need.  I was not asking people to do detailed computations.  Though when  users asked for info I supplied it, since they are kindly trying to help.

The original post said there was other income in 2015/16 against which we would like to make a S64 claim.

In the OP I was asking a technical point about whether the client would lose relief due to the overlapping periods used in computing the reliefs.

Thanks (0)
RLI
By lionofludesch
23rd Mar 2016 22:05

Yes but ....

She doesn't lose relief but she may not have anything to use it against.

Her other income is key to answering the question.

Still, if you're happy, that's grand.

Thanks (0)
avatar
By ARAFVH
24th Mar 2016 08:20

Thanks all

Yes indeed lionofludesch I am now happy.  I have used the answers here to work out the position.  It is not good for my client but I have been able to show her that all the losses are being relieved.  The presence of dividends as the main other income just limits the tax relief available.

 

Thanks (0)
Share this content