Maximising the amount and speed of reclaiming cash does involve knowing the rules, they aren't as wide as MPs' expense rules, but they do have some flexibility which can be missed.
Individuals
Let's start with the rules for individuals in business trading personally, or in partnership but not through a company.
1.You can take £50,000 of losses back up to three years. This is a temporary measure with strict time limits.
2.You can offset losses against other types of income and gains in the year the loss happened, or the prior year.
3.If your business does cease to trade, losses in the twelve months before ceasing can be carried back up to three years.
4. Losses can also be carried forward against future trading profits.
If, for example, a business incurring losses of £70,000 in 2009 after several successful years, that loss could be carried back to 2008 in full, or to 2008, 2007 or 2006 capped at £50,000. It can be offset in full against other income or gains (say on a second home) received in 2009.
There is also the option to carry forward against future trading losses. Which will depend on two things:
- how desperate the business is for cash
- which year has the highest tax rate (it might be 41 pence in the pound for losses, or take 30 pence to get the cash now).
It is also often forgotten that if you carry back a trading loss or use it against other income, you can ALSO use it against future profits for Class 4 National Insurance purposes. A £20,000 loss could mean up to £1,600 off class 4 NI payments in the following period. Something definitely worth having!
Read more about Company and Group tax planning by clicking here.
Author: Duncan Montgomery is a tax partner at Whittingham Ridell, Shrewsbury, Shropshire and a member of the UK200Group tax panel.
Source: Forum for Private Business - www.fpb.org
www.ukba.co.uk
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