ACCA TX ^UK Syllabus E. Corporation Tax Liabilities - Factors that influence choice of loss relief claim - Notes ^{11 / 14}

There are 3 factors that will be relevant in the exam that will influence the choice of the loss relief claim:

1. Relief as soon as possible

   Therefore, the current year total income and carry back 12 months’ total income claim are much more likely to be used before the carry forward claim against trading profits

2. The rate of corporation tax

   Loss relief claim against profits before 1 April 2023 will save tax at 19%.

   Loss relief claim against profits after 1 April 2023 will save tax at following rates. This is also the most preferable order to follow with respect to the amount of tax being saved.

   - Profits between the lower limit and upper limit - 26.5%

   - Profits taxed at the main rate - 25%

   - Profits taxed at the small profits rate - 19%

   Here’s an illustration to show why the tax saving between the lower limit and the upper limit is at 26.5%.

   Cow Ltd has TTP of 50,000 for the y.e. 31/3/25.

   Cat Ltd has TTP of 60,000 for the y.e. 31/3/25.

   Cow Ltd - Profits are within the lower limit of 50,000 - CT at 19%

   CT liability = 50,000 x 19% = 9,500

   Cat Ltd - Profits are between the lower limit and upper limit

   60,000 x 25% = 15,000

   Marginal relief = (250,000 - 60,000) x 3/200 x 60,000/60,000 = 2,850

   CT liability = 15,000 - 2,850 = 12,150

   Profits between the lower and upper limit are 10,000 (60,000 - 50,000).

   Excess tax payable on these profits is 2,650 (12,150 - 9,500).

   2,650/10,000 x 100 = 26.5%

3. Making a large company a small company for corporation tax purposes

   If a loss relief claim can reduce the size of the company, then this will avoid the company having to make quarterly instalments of corporation tax.