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bigduckontax, Accountant
Category: Tax
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My client is acquiring another company, with loses. How do

Customer Question

My client is acquiring another company, with loses. How do we utilise the loses going forward and ring fence the assets. Group structure is to be used.
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. Within the Group the losses acquired maybe used up, down or sideways in any manner as convenient to relieve Corporation Tax (CT) liabilities due by other members of the group. The assets remain in the company and are not affected by this procedure. I do hope my reply has been of assistance.
Customer: replied 2 years ago.
Hi Keith,Thank you very much for your answer, I had expected a much more detailed answer, in fact this I had hoped I had paid for.I understand that we can use the losses but in your answer you do not indicate any method.Company M is acquiring company N with losses of £300,000.00 and Tangible Asset of £60,000.00 (sole trader). After Acquisition Company N will company P Limited.Company M made an other of £80,000.00 to acquire the company N. Company M is profit making.The intention is to leave the asset in of N in P limited, therefore 60k in Asset and 60k liabilities.The losses it to be a the Group company company G which will own M and P, so the profit of M can be utilised against the losses. Will this protect the assets as well?A detail response will be much appreciated including balance sheet entries.Kind regards,
Expert:  bigduckontax replied 2 years ago.
Within a group companies should produce final accounts and Corporation Tax (CT) computations as at the same date. The CT computations will either indicate profits liable to tax or losses available. Losses can then be utlilsed to offset profits. I regret I find you follow up question confusing. You say 'After Acquisition Company N will company P Limited' and never explain the relationship between the two. Perhaps you could be kind enough to enlighten me as to the actual position.
Customer: replied 2 years ago.
Hi Keith,
Perhaps it is best we have a telephone conversation and explain the situation. You may be better placed to answer the question. Please let me know if you are available tomorrow.
Many thanks,
Expert:  bigduckontax replied 2 years ago.
I really don't think that is necessary Aqua. Once all the chips are down the tax losses can be used to offset taxable profits elsewhere in the group. Assets, unless diapised of at a profit or a loss only come into the equation as capital allowances or charges in computing the CT liability.
Customer: replied 2 years ago.
The company my client is buying is a sole trader which has the 300k loss in the company. Can my client incorporate the losses once company is acquired or can group acquire the losses?
Expert:  bigduckontax replied 2 years ago.
Yes they can. I have done this when I was controlling a company group and we bought in another company with substantial capital losses. Made us a fortune figuratively speaking. Tax losses can inflate the value of a company on sale.