Calculation of corporation tax cont

Hi Chris
Clearly a company would wish to make as big a profit as it can but would then wish to minimise its corporate tax liability as efficiently as possible which in the case of losses means trying where possible to remove from tax those profits being taxed at the highest tax rates. This may mean that if in the period of loss the company’s total profits would be taxed at the small profits rate of 20% but next accounting period the company will be marginal it may be worthwhile choosing to carry the loss forward to get the higher tax relief while foregoing the cash flow benefit of reducing this period’s tax charge.
If however the company was large this period and marginal in the next accounting period it may be better to gain relief this period at 23% rather than wait until the next accounting period to save at just 23.75% (plus the main rate is continuing to fall and with it the marginal rate so in fact there may be little or no benefit to carrying forward the loss!)
Do also remember that if a company wishes to carry back a loss it MUST firstly use the loss in the current period! Therefore if a company is small this period but marginal in the preceding period it cannot relieve against those marginal profits until it has fully relieved the small profit of the current period as partial claims are not allowed.
When you look later at group relief of losses (using the loss made by one company in the group against profits made by other group members) you will discover that partial claims to, for example just remove the marginal profits of a company, are allowed!
Hope this helps and good luck in your exams!