3 ways to recover the tax from a trading loss Reply

Button "Cashback" green/silver

Many companies will make a trading loss at some point, its part of being in business. When it happens how can you claim tax relief and get a corporation tax refund? the three main ways are as follows:

1. Carry the Trading Loss Forward

The most common way is for Trading losses to be offset against profits from the same trade in future accounting periods. You don’t have to make any claim for this to happen. It’s done automatically when you complete your Corporation Tax Return.

This method means you get your refund in the future by paying less tax in future years.

2. Carry the Trading Loss Back

Instead of carrying a loss forward, you can claim for the loss to be offset against profits for the preceding 12-month period (not accounting period). But you can only do this if your company or organisation was carrying on the same trade at some point in the accounting period or periods that fall in the preceding 12-month period.

You can make a claim to carry back a trading loss when you submit your Company Tax Return for the period when you made the loss.

Your claim should normally be made in your return or in an amendment to a return.

If you’re too late to make your claim in your return or return amendment for an accounting period, you can make your claim in a letter. A claim should be made within two years of the end of the accounting period when you made the loss. Your claim should include:

  • the name of your company or organisation
  • the period when the loss is made
  • the amount of the loss
  • how the loss is to be used

When you amend a return previously submitted and paid and it results in an overpayment you should be able to claim a cash refund.

3. Terminal Loss

If your company or organisation stops trading, you may be able to claim Terminal Loss Relief. This allows you to carry back any trading losses that occur in the final accounting period to be set off against profits made in any or all of the previous three years. But for each year, you can only offset the loss against the profits in that year if your company or organisation was carrying on the same trade at some point in the accounting period or periods that fall in that year.

This gives you three years rather than one to offset the loss against.

Click here for more details from HMRC

steve@bicknells.net

 

 

How changing your year end can help cash flow 2

Revenue and Customs

Basically if your company makes a loss you carry it forward.

The amount of trading loss available to be carried forward is the loss sustained less any loss relieved in the current year or surrendered as group relief.

Carry forward a corporation tax loss is automatic, therefore as no claim is required there is no time limit.

The legislative reference for a trading loss carried forward is: CTA 2010 s45) [old reference ICTA 1988 s393(1)].

You can also make a claim to carry a loss back 12 months.

The legislative reference for carry back loss relief is: CTA 2010 s37(s)(b)(6)(8) and s38 [old reference ICTA 1988 s393A(1)(b)(2)-(2C)].

But there is another option, to help improve your cash flow, lets say you have been making profits and you have just come to the end of your accounting period, the next few months are going to be tough and you will make a loss. If you change your year end by extending it or having a shorter period you could help your cash flow.

Corporation Tax is payable 9 months and 1 day after your year end, so you will have a return for 12 months and have tax to pay but if you had a 6 month return to follow it you could reduce the time before you claim relief for the loss.

If you extended your accounting period to 18 months the figures might even look better for credit rating.

You can shorten as much as you want but not beyond the start date of the accounting period being changed.

You can only extend once every 5 years.

See the Companies House Checklist for details

steve@bicknells.net