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Milo’s trading profits are as below:
accounts are prepared for the final 12 months and there are no overlap profits.
in 14/15 there was a loss of 39,000. in 14/15, he got interest of 4350 from an inheritance he had invested.
the trading profits for last 3 years are also given.
if terminal loss is claimed, is the following working correct?
11/12 12/13 13/14 14/15
—————————————————————————————-
Trading profit 10920 11655 10995 Nil
TLR (10920) (11655) (10995) –
—————————————————————————————-
Revised Trading Pr. Nil Nil Nil Nil
Other income 4350
—————————————————————————————-
total income 4350
Less PA (10,000)
——————————————————————————————–
Taxable income Nil Nil Nil Nilthanks in adv
If Milo ceased trading on his normal accounting date so that the last 12 months of trading only included the loss making period then that loss would be available for terminal loss relief and would go solely against the trading income of the preceding 3 tax years on a LIFO basis as you have shown.
thank u … so my working for terminal loss is correct and now i move to the next part of this worked example in kaplan.
as an alternative, the example computes taxable income based on loss relief on Total Income, as follows: pls note that loss in 14/15 is 39,000.
——————-11/12—–12/13—–13/14—–14/15
trading profit 10920—-11655—-10995—–Nil
other income nil———-nil———-nil———-4350
—————————————————————-
total income 10920—-11665—-10995—–4350
loss relief*** zero——-zero——zero——-(4350)
——————————————————————–
net income * 10920—-11665—-10995—–Nil
less PA***** 10000—-10000—-10000—-zero
———————————————————————-
taxable inc***920——–1665——-995——Nilfirst: in total income, i cd have claimed a loss in 13/14 also. why didnt milo take this claim?
thanks!!
This seems a very strange question from the information you have provided me with and from the answers you have suggested are given:
1) The terminal loss relief is very inefficient as if we assume a 10,000 PA in all tax years, as you have shown, most of the income reduced would be covered by the PA so very little tax benefit is derived – the tax savings, all at 20% would be going back over preceding 3 tax years (995 + 1665 + 920) which at 20% would be only £716
2) There would be no tax saving whatsoever from making the current year claim as the income of 4350 is well below the PA – the only reason for making such a claim would be to access the extension claim against chargeable gains but as you have not listed any such gains I can see no reason for making the claim!!
3) If you made the claim against total income of 2013/14 then again this would be inefficient as you would need to use 10995 of loss to save paying 20% tax on only 995 of income!
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