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Hi everyone. Hope you’re doing well on your F6 revision.
I have questions about terminal loss relief of company.
1. Is the terminal period must be 12 months?
2. Is the relief allowed to carry back 36 months or 3 years? This can be different in some situations.Thanks in advance. Hope someone can help me.
This relief allows the loss of the last 12 months of trading to be set off against the trading profits of the tax year of permanent discontinuance and the three tax years preceding
that year on a LIFO basis.Terminal Loss can be carried back 36 months. If any of the last 3 accounting periods is less than 12 months, we can carry the loss further back to a 4th year up to the extent that the 36 months are completed.
Many thanks for replies above.
If the last accounting period is less than 12 months (eg. 3months), do I have to work out the loss of last 12 months before it can be carried back to offset previous 36 months?
Yes – If the last period of account is less than 12 months, the results of the last period and part of the previous period enter into the calculation of the terminal loss. If a trading profit arises for one of the two periods of account, the profit will reduce the loss available for relief, but cannot turn the loss into a profit.
For example:
A trader, who prepares accounts to 31 December annually, ceases
trading on 30 September 2017, making a trading loss of £18,000 for
the 9 months ending 30 September 2017, and a trading profit of £30,000
for the year ended 31 December 2016. The terminal loss will be:
(1) Loss attributable to 2017–18: 6?9 × £(18,000) = (12,000)
(2) Loss attributable to 2016–17:
3?9 × £(18,000) = (6,000)
3?12 × £30,000 = 7,500 i.e. £0
Hence terminal loss (1 + 2) = (12,000)
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