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Dear Sir,
In one lecture you were explaining Loss relief for companies and then how to evaluate tax savings due to the option selected.
TTP was 490,000 before any loss included and the carried back loss was 350,000.
Then tax savings was done like 190,000 * 23.75 – marginal
160,000 * 20 – small
350,000 – Total.My question is why didn’t you just multiply 350,000 by 23.75 directly?
Is this calculation only required for Marginal company?
In other question the company was Big company and you simply multiplied saving with required rate of 21%
Regards.
The marginal rate is only applicable to marginal profits – those that fall between the lower and upper profit limits! For a single company the lower profit limit is 300,000 and the upper profit limit is 1,500,000, hence a profit of 490,000 means that the company is a marginal company and the effective rate of tax on the marginal profits for FY 2013 is 23.75%. Of the 490,000 only 190,000 is therefore marginal profit – once the profit has been reduced to the lower profit limit of 300,000 any further loss used is only removing profits that would be taxed at the small profits rate and hence the tax saving is only at 20%.
If a loss is applied in a large company and only removes profits above the upper limit or removes every pound of profit then the effective saving is the full rate for the FY concerned.
For example TTP £2M for A/C y/e 31.3.14 (FY2013)
Tax saving if a loss of £2M available = £2M x 23% = 460,000, this effectively made up of:500,000 x 23% (from 1.5M to £2M) = 115,000
1,200,000 (from 0.3M to 1.5M) x 23.75% = 285,000
300,000 (up to 0.3M) x 20% = 60,000Total saving = 460,000
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