ATXP6 UK
Syllabus A4. Corporation Tax A4a. Taxable total profits

A4a. The carry back of a loss - periods of less than 12 months

Syllabus A4a)

E2 Taxable total profits

There are 2 areas in claiming loss relief that you should be aware of:

  1. If the period before your loss making period is less than 12 months, your carry back relief claim is for 12 months, therefore you will have to go one further period back for the remaining months. 

    For example If a loss making period was 1 year long, the period before that was 6 months long and the period before that one was 1 year long; then you will take the full 6 months of the previous period and 6 of the 12 months total income for the period before that also - to make sure that you have gone back a full 12 months.

  2. You must compare the same months of loss and profit. 

    For example Above, for the period that was 12 months long - but for which I could only offset against 6 months - I must compare 6 months of profit with 6 months of loss, and take the lower of them as the amount of loss I can deduct. 

    You'll see this clearly in Lina Ltd. Illustration below.

Illustration

Lina Ltd. had the following results:

Year ended 30.06.2018 6 months ended 31.12.2018 Year ended 31.12.19
Trading profits/loss £60,000 £2,000 £(66,000)
Chargeable gains £2,000 £10,000 £10,000
Total income £62,000 £12,000 £10,000

What amount of loss relief will the company get if they use the current year and carry back total income claims for loss relief?

Solution

Note the company's last accounting period is only for 6 months.  

Therefore the carry back 12 month claim will use these 6 months and go further back 6 months to make up an entire 12 month claim.

Year ended 30.06.2018 6 months ended 31.12.2018 Year ended 31.12.19
Trading profits/loss £60,000 £2,000 Nil
Chargeable gains £2,000 £10,000 £10,000
Total income £62,000 £12,000 £10,000
Total income Current year/12 months claim (£10,000)
Total income Carry back 12 months claim (set off in full in this period)
(£12,000)
Total income Carry back 12 months claim (restrict set off to lower of 6 months of profit or 6 months of loss) Lower of: 6/12*£66,000 = £33,000 (Loss for the 6 months)
                  6/12*£62,000 = £31,000
(£31,000)
Total taxable profts £31,000 £Nil £Nil