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bigduckontax, Accountant
Category: Tax
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Experience:  FCCA FCMA CGMA ACIS
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Good morning A small limited company has been trading over

Resolved Question:

Good morning
A small limited company has been trading over 10 years , financial year end 31 July , last annual accounts & CT600 filed for year ended 31 July 2014, company ceased trading 3 January 2016, and the accounting reference date extended, so 1 set of final accounts is prepared for the period from 1 August 2014 to 3 January 2016 (521 days) ,net taxable profit for the period is £36,097, so on the form CT600 for the year ended 31 July 2015 and period ended 3 January 2016 ,the profit will be declared as £25,288 (£36,097 x 365/521) and £10,809 (£36,097 x156/521) respectively . At the cessation company made a loss of £81,000 on disposal of its fixed assets
My question is how to treat this loss?
To be apportioned as above , 365 & 156 days and set off against the profit ?
Or claim the usual capital allowances for the year ended 31 July 2015 to set it off against the profit for that year and carry forward the WDA and have a bigger loss in the period from 1 August 2015 to 3 January 2016 and set it off against the profit for the same period?
Look forward to hearing from you
Regards
Soheil
Submitted: 9 months ago.
Category: Tax
Expert:  bigduckontax replied 9 months ago.
Hello Soheil, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. These are fixed assets so appropriate entries must be made in the Capital Allowance computations for the year and any balancing charges taken into account in the companies activities. If after, doing the Corporation Tax (CT) computation, taking into account Capital Allowances or balancing charges, There is a loss then it can be carried back against CT profits as advised in HMRC CTM04505 viz: 'A claim may be only to set-off losses against profits of a current accounting period, or it may be to set off losses against profits of the current period, and then to carry back any balance of unused losses against profits of preceding accounting periods. A company cannot claim to carry back losses without first setting them off against profits of the current period.' These losses can be carried back up to three years under Terminal Loss Relief. Here is the ACCA's advice: 'TERMINAL LOSS RELIEFCompanies that cease to carry on a particular trade can claim terminal loss relief for losses generated in the final accounting period. Losses may be carried back up to three years and set off against total profits; CTA 2010, ss39, 41. Losses can only be set off if the company was carrying on the same trade and is claimed on a LIFO basis.Terminal loss relief needs to be claimed within two years of the end of the accounting period the loss was made in. The claim is normally made within the tax return or an amended tax return but again can be made by way of a stand-alone claim.'I do hope that my reply has been of assistance.
Customer: replied 9 months ago.
Thanks Keith for the prompt reply, by loss I meant balancing allowance created by disposal of fixed assets at cessation, there is a taxable profit before claiming for any capital allowances, I am familiar with corporation tax losses at cessation and their treatment
However there is only 1 set of accounts is prepared for the period 1 August 2014 to 3 January 2016) and 2 CT600 forms to be submitted (year ended 31 July 2015 and period from 1 August 2015 to 3 January 2016) the figures from the accounts are apportioned to be declared on CT600 but there are 2 ways dealing with the balancing allowance1 For the year ended 31 July 2015 claim capital allowances and carry forward WDA to the following period and claim all the balancing allowance in the final period against the profit for that period2 No claim for capital allowances for the year ended 31 July 2015, and the balancing allowance of £81,000 to be claimed as 365/521th on CT600 for the year ended 31 July 2015 and 156/521th on CT600 for the final period. As the figures from the accounts are apportioned for CT600 purposes, I suppose this method is in line with that!Due to company’s financial history and circumstances, both above have no impact on corporation tax liability/refund, but I am interested to know technically which one is correct
Regards
Soheil
Expert:  bigduckontax replied 9 months ago.
Do you mean a balancing charge not a balancing allowance?
Customer: replied 9 months ago.
Sorry , on first option it should be WDV and not WDA,
However £81,000 is a balancing allowance , WDV brought forward exceeded sale proceeds by £81,000
Expert:  bigduckontax replied 9 months ago.
Here is a pretty succinct summary from the Gov UK web site: 'For items in single asset pools you can claim any amount that’s left as a capital allowance. This is known as a ‘balancing allowance’. If the value you deduct is more than the balance in the pool, add the difference to your profit. This is a balancing charge.You can only get a balancing allowance in your main or special rate pool when you close your business. You can get a balancing charge in any pool in any year.' So you may have something to write down any profits or increase any losses in your CT computation.
Customer: replied 9 months ago.
Thanks for that, but I'm only interested to know which of the 2 methods I outlined is correct
Expert:  bigduckontax replied 9 months ago.
I am of the opinion that this option offered by you is the better approach: 'claim the usual capital allowances for the year ended 31 July 2015 to set it off against the profit for that year and carry forward the WDA and have a bigger loss in the period from 1 August 2015 to 3 January 2016 and set it off against the profit for the same period' Please be so kind as to rate me before you leave the Just Answer site.
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3119
Experience: FCCA FCMA CGMA ACIS
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Customer: replied 9 months ago.
Thanks
Expert:  bigduckontax replied 9 months ago.
Thank you for your support.

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