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Hello, sorry for so many questions but i have minor confusions 😛
I have a bit of a confusion here.
When we carry back the loss, we have to set the loss off against current year’s total profit as a must, But i want to ask if we are JUST carry forwarding do we MUST have have to set the loss off against current year aswell? or is it optional that we can set it off against current year and then carry forward or just carry forward without setting off against current year? is it our choice? thanks 🙂Hi,
First of all you have to know about sec.64 which clearly states that if you want to set of your loss then you can set off against total income of current year and or previous year, now you have a choice to set off first from current then previous or previous first then current. The main concept of setting off trading losses is tax savings. If you can save more in tax previous year then go first to sett off against total income of previous year then current.
I hope my answer cleared your confusions, if not then experts advice is better to go with…
Thanks
Farrukh
@farrukh090 said:
Hi,First of all you have to know about sec.64 which clearly states that if you want to set of your loss then you can set off against total income of current year and or previous year, now you have a choice to set off first from current then previous or previous first then current. The main concept of setting off trading losses is tax savings. If you can save more in tax previous year then go first to sett off against total income of previous year then current.
I hope my answer cleared your confusions, if not then experts advice is better to go with…
Thanks
Farrukh
That’s only a case in Incorporated business that you have a choice, in Corporate Businesses you cant carry back without setting off against current year first.
Thanks for your time but ill wait for the Tax tutor to reply 🙂
Hi again captmario you were nearly right in your comment regarding Farrukh’s advice. Farrukh was not as you rightly stated referring to companies and Corporation Tax but stating the position for the UNincorporated trader in Income Tax (please note Incorporated IS a company!).
In Corporation Tax as you again correctly stated if the company wishes to carry back the loss it MUST firstly claim against the Total Profits of the current accounting period. If however the company wishes to carry forward all of its trading loss against future trading profits of same trade, it may do so without the need to firstly offset against its current period.
An exam question may instruct the candidate to claim relief at the earliest available opportunity meaning use losses in the following order:
– current period
– carry back
– carry forward
It may then ask you to identify other options:
– current period and then carry forward, or
– carry the entire loss forward
and may further ask you to state the objectives to get optimal use of losses:
– achieve relief at highest tax rate
– avoid wasting gift aid payments
– relief at earliest available opportunity
You must be careful to distinguish between the loss reliefs in Corporation Tax and Income Tax
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