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I tried so many times to solve this question in Kaplan kit. but I didn’t understand how they actually claim the loss in this question could u plz explain how did they make the loss memorandum.
I did understand the trading assessment in the questions..
le commenced to trade as art dealer on 1 September 2013. His trading results,
Period ended 31.5.14 40,500 Profit
Year ended 31.5.15 (54,000) Loss
Year ended 31.5.16 (27,000) Loss
Year ended 31.5.17 11,000 ProfitLeonardo does not foresee making any significant profits in the next 2 or 3 years.
Leonardo has not had any other income in any of the years in question, or earlier.
Required:
(a) Show how his trading loss can be utilised most effectively, giving your reasons*Answer*
Assessments
Tax year Basis period £
2013/14 A(1/9/13-5/4/14) 7/9 × £40,500 31,500
2014/15 F(1/9/13-31/8/14) £40,500 (3/12 × £54,000) 27,000
2015/16 CYB (y/e 31.5.15) Loss 0
2016/17 CYB (y/e 31.5.16) Loss 0
2017/18 CYB (y/e 31.5.17) 11,000Loss memoranda
Loss in 2015/16 £
Loss in y/e 31.5.15 54,000
Less: 14/15 when applying the opening year rules (13,500)= 40,500
Less: Special opening year loss relief in 2013/14 (31,500)
in 2014/15 (9,000)
= 0***Loss in 2016/17**
Loss in y/e 31.5.16 27,000
Less: Special opening year loss relief in 2014/15 (£27,000- £9,000) (18,000)Loss carried forward to 2017/18 9,000
I dont understand the loss memorandom . Could u tell how to arrive to these figures in this question.
Profits are assessed in each of 2013/14 and 2014/15 with 13.500 of the loss of 54,000 for the y/e 31 May 2015 being used “in aggregation” to reduce the 2014/15 assessment from 40,500 down to 27,000.
This leaves 40,500 (54,000 – 13,500) loss for tax year 2015/16 (it is unfortunate that this figure is the same as the profit in the first accounting period!)
This loss will then be used under the special opening years relief rules against the total income of the preceding 3 years and is carried back first to 2012/13 but that year has no income so the loss is c/f to 2013/14 where it is relieved against the total income in 2013/14 of 31,500. This leaves 9,000 to be used in 2014/15 against the total income of 27,000.
We now look to use the loss of 27,000 for 2016/17 again under the special opening year rules which is available for losses sustained in the first 4 tax years of assessment – this is again carried back against total income of the preceding 3 tax years on a FIFO basis which will go back firstly to 2013/14 but this has already been relieved. The loss is therefore now used in 2014/15 where 18,000 of income still remains – this leaves 9,000 to be used against total income of 2015/16 but this year has a nil assessment so the loss is still unused and can only now be c/f using the normal c/f loss relief against future trading profits of the same trade – against the trading profit of 11,000 assessed in 2017/18
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