ACCA TX UK Syllabus E. Corporation Tax Liabilities - Carry back relief of trading losses - Notes
A trading loss can be deducted from the previous 12 month's Total income
Illustration 1
In 2024 - a trading loss of (£100,000), it had no other income in that year.
In 2023 - property income of £75,000 and chargeable gains of £35,000
Calculate Total taxable profits.
Property income £75,000
Chargeable gains £35,000
Total income £110,000Less:Trading loss carried back (£100,000)
Total taxable income £10,000 - this is the amount that corporation tax will be paid on.
The current year total income claim must be made FIRST
Unlike for individuals, the current year total income claim must be made before the claim against total income for the previous 12 months.
Illustration 2
In 2024 - a trading loss of (£100,000) and property income of £25,000
In 2023 - Total income of £200,000The trading loss must first be deducted from 2024 total income, and can then be carried back to the total income (2023)
Current year relief:
Property income £25,000
Less: Current year trading loss (£25,000)Total taxable income £Nil - no corporation tax will be paid in the year ending 31/03/2024
Carry back relief:
Total income £200,000
Less: Trading loss carried back (£75,000)Total taxable income £125,000 - corporation tax will be paid on this amount in the tax year ended 31/03/2023.
Remember:
Qualifying charitable donations (QCD) CANNOT be saved, loss must be deducted first and if any income remains - then the QCD can be deducted
Illustration 3
Pulkit Ltd. made the following income for the year ended 31/03/2024: | |
---|---|
Trading LOSS | (£30,000) |
Property income | £20,000 |
Interest income | £5,000 |
Qualifying charitable donations | £5,000 |
Pulkit Ltd. made the following income for the year ended 31/03/2023: | |
---|---|
Trading income | £20,000 |
Property income | £20,000 |
Interest income | £5,000 |
Qualifying charitable donations | £5,000 |
How can the trading loss of the year ended 31/03/2024 be relieved?
Solution:
The trading loss of 31/03/2024 can be relieved against:
Current year total income (£20,000 + £5,000)
Carry back 12 months of total income (£20,000 + £20,000 + £5,000)
Total profits of future years (future total profits = unknown)
Here we will illustrate only the current year total income claim and the carry back claim against total income for 12 months.
Trading loss of (£30,000) incurred in the year ended 31/03/2024 will be relieved against the total income generated in 31/03/2024 as shown below.
In the year ended 31/03/2024 | |
Property income | £20,000 |
Interest income | £5,000 |
Total income | £25,000 |
Current year trading loss | (£25,000) |
Total taxable profit | £Nil - no corporation tax will be paid. |
The qualifying charitable donations for the year ended 31/03/2024 have been wasted.
In the year ended 31/03/2023: | |
The carry back total income claim for 12 months: | |
Trading income | £20,000 |
Property income | £20,000 |
Interest income | £5,000 |
Total income | £45,000 |
Trading loss relief carry back claim | (£5,000) |
Qualifying charitable donations | (£5,000) |
Taxable total profits | £35,000 |
Notice here that the qualifying charitable donation has not been wasted, as there was enough income remaining for it to be deducted.
Loss memo: | |
Trading loss of 31/03/2024 | (£30,000) |
Current year claim against total income | £25,000 |
Carry back claim against total income | £5,000 |
Loss to be carried forward | Nil |