Company made a loss - treatment of salary and pension

[gizzmo]

Hi

My company completed its last contract in January 2014. The accounting year end is Mar 31st - the accounts upto 31st March 2014 have all been submitted to HMRC and all corporation tax due was paid by the Dec 31st 2014 deadline.

Since January 2014 the company has not taken on any new contracts for various reasons - (I went travelling and also took some time out for personal reasons). The company has therefore not had any income this accounting year, although I have not registered it as dormant.

The company has a large cash surplus from its previous trading years. I am considering taking salary for 2014/15 upto my personal allowance, as well as the annual £40k pension allowance as an Employer contribution into my SIPP as I do every year. However as the company will have not had any revenues this year, this will be funded by retained profits and I presume this will result in the company declaring a loss for accounting year 2014/15. How will this loss be treated by HMRC? Can it be offset against earlier years CT paid and will it be possible to claim a CT refund?

I have asked my accountant - but am waiting for him to "check". I intend to change accountants once this tax year has been tied up as I have become increasingly frustrated with my current accountant. He seems to always be too busy these days...

Thanks for your help in advance.

[Jessica@WhiteFieldTax]

You should be able to carry a loss back and obtain a Corporation tax refund.

Detail:

https://www.gov.uk/corporation-tax-c...laiming-a-loss

[Craig at Nixon Williams]

The company has a large cash surplus from its previous trading years. I am considering taking salary for 2014/15 upto my personal allowance, as well as the annual £40k pension allowance as an Employer contribution into my SIPP as I do every year. However as the company will have not had any revenues this year, this will be funded by retained profits and I presume this will result in the company declaring a loss for accounting year 2014/15. How will this loss be treated by HMRC? Can it be offset against earlier years CT paid and will it be possible to claim a CT refund?

The trade loss in this scenario has been brought about by salary and pension contributions being made for the benefit of the director. HMRC would therefore have scope to disallow loss relief on the basis that the expenses were not incurred for a trade purpose.

[philip@wellwoodhoyle]

Only a trading loss can be carried back, so the question has to be whether the company was trading. If it had no income and was not active, then HMRC could well argue it wasn't a trading loss and disallow any loss relief claim.

[JB3000]

Hi

My company completed its last contract in January 2014. The accounting year end is Mar 31st - the accounts upto 31st March 2014 have all been submitted to HMRC and all corporation tax due was paid by the Dec 31st 2014 deadline.

Since January 2014 the company has not taken on any new contracts for various reasons - (I went travelling and also took some time out for personal reasons). The company has therefore not had any income this accounting year, although I have not registered it as dormant.

The company has a large cash surplus from its previous trading years. I am considering taking salary for 2014/15 upto my personal allowance, as well as the annual £40k pension allowance as an Employer contribution into my SIPP as I do every year. However as the company will have not had any revenues this year, this will be funded by retained profits and I presume this will result in the company declaring a loss for accounting year 2014/15. How will this loss be treated by HMRC? Can it be offset against earlier years CT paid and will it be possible to claim a CT refund?

I have asked my accountant - but am waiting for him to "check". I intend to change accountants once this tax year has been tied up as I have become increasingly frustrated with my current accountant. He seems to always be too busy these days...

Thanks for your help in advance.

Only trading losses can be carried back for tax relief purposes. As no trade has occurred the loss would need to be carried forward and offset against future profits.

[Jessica@WhiteFieldTax]

As I recall, the instance of trading v non trading and temporary cessation of trades was thrashed out considerably in case law around the time of WW2 and afterwards, and tends to go with facts and intent.

A lot will then depend on (a) whether OP intends to use company again and (b) if OP does use co again.

If not terminal loss may help, but there would have to be evidence that co was still trading in part of the final (current?) accounting period, eg still actively seeking contracts even if no work was done.

Devil will be in the detail.

[gizzmo]

Thanks everyone for your replies. Certainly provides food for thought. I do intend to trade in the company again, and actually have a new contract due to start in a few weeks, but as this will be in the new tax year, I thought it would be a good idea to utilise my tax free benefits this year rather than lose them. I'm not that fussed about claiming tax relief on the losses, but was just curious as to whether it would even be allowed.

[7specialgems]

This is interesting.

If you *were* trading (say your turnover was £50k for the year) but decided after 5 years of contracting you wanted to start a pension scheme and effectively back date contributions to when you began and wanted to raid the company's net profit to bankroll the down payment, but you have four years accounts and had made four CTAX payments, would you be able to argue a trading loss in that scenario and claim some of the raid back from CTAX paid?

In said scenario, you would have been trading, but yes, the defecit would still have been brought about by a large payment into the Director's pension pot, but would be interesting to know if the fact you were trading would qualify you to do it.

[northernladuk]

Should you have not closed the company down and taken some advantage from tax reliefs an also taken advantage of having no history for historic investigations etc?

[Contreras]

This is interesting.

If you *were* trading (say your turnover was £50k for the year) but decided after 5 years of contracting you wanted to start a pension scheme and effectively back date contributions to when you began and wanted to raid the company's net profit to bankroll the down payment, but you have four years accounts and had made four CTAX payments, would you be able to argue a trading loss in that scenario and claim some of the raid back from CTAX paid?

In said scenario, you would have been trading, but yes, the defecit would still have been brought about by a large payment into the Director's pension pot, but would be interesting to know if the fact you were trading would qualify you to do it.

See Craig's answer above, it applies equally to your scenario.

But it's an opinion and opinions vary. You may find IFA is less cautious - I had a presentation from one firm that £200k contribution was possible (when the limit was £50k/yr) and even that it was OK to immediately put the pension pot into drawdown and withdraw 25% lump sum tax free.

Interesting, yes. I know which opinion I trust though.