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I am confused as to how is it possible to claim losses from previous that tax has already been paid for? I don’t understand in practice how that works, book wise I have learnt the system.
Also why is there a concern of wasting Personal Allowance. It is reducing how much amount will be taxed just like a loss would, so why is the word wastage used? how is wasted? a loss is still reducing the amount to be taxed.
Kindly explain. And I also would like to appreciate your lectures, very well presented and sufficient time is given per topic. Thankyou.
Hi, sorry I clearly missed the question when you posted it – my apologies.
If a loss is carried back to use against the total income of an earlier year then it will result in a repayment of tax originally paid for that tax year, for as you say, that tax has already been paid. This is good news from a cash flow basis as an immediate repayment of tax already paid for the preceding tax year is better than a reduction in the current years’ tax or the tax payable for a future tax year.
If a loss is used to reduce total income below the the level of the PA then the PA, or a part of it, will be unused and cannot be used to reduce income of any other tax year and hence is wasted.
If however the loss is not used in that specific claim against total income allowing full benefit of the PA to be used, there are other loss reliefs available to use the loss, such as carry forward, hence the loss would not be wasted.
So we would wish if it is possible to use losses efficiently – we do not want to use a loss to reduce income that would be covered anyway by the PA, allowing therefore the loss to be used in another tax year.
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