Loss Relief

[Little'Old Me]

Friendly Accountant is right on all counts. One confusion though, it is unlikely that your loss this year will be caused by a high salary (above personal allowance(s)), more likely by other expenses eg travel costs to interviews, marketing costs, overheads (phone, PC, office etc).

So, where MyCo makes a loss (ie revenue less than allowable expenses, which can include salaries) the loss can be offset against profits made in previous years and CT reclaimed.

Lets be straight here. As far as contractors are concerned this apparent gimme relates to those of us that spend most if not all of the year on the bench. (This is why FA talked about high salaries - the only other way of making any meaningful loss in MyCo).

Companies tend to continue to have expenses (fixed costs) continuously as they are trading, even if they don't have any income, due to lack of orders (or contracts). Thats why they are "trading" companies. Hence the losses.

[Little'Old Me]

I suppose putting 100K directly into a pension from company accounts is out of the question then??

Puts a great big hole in yearly profits and boosts pension coffers at the same time without incurring any further tax / NI

If you'd been putting £100k away for last couple of years, then there should be no problem doing it again. But as a one off, to create a loss - would be pushing it, and unlikely to be allowed as a trading expense...........

[Billy Pilgrim]

I suppose putting 100K directly into a pension from company accounts is out of the question then??

Puts a great big hole in yearly profits and boosts pension coffers at the same time without incurring any further tax / NI

[Emigre]

I wonder if any accountants are lurking? Maybe someone can enlighten us??

I know Alan from NW often posts on here.

I’ll post another thread asking them to take a look.

Friendly Accountant is right on all counts. One confusion though, it is unlikely that your loss this year will be caused by a high salary (above personal allowance(s)), more likely by other expenses eg travel costs to interviews, marketing costs, overheads (phone, PC, office etc).

So, where MyCo makes a loss (ie revenue less than allowable expenses, which can include salaries) the loss can be offset against profits made in previous years and CT reclaimed.

Lets be straight here. As far as contractors are concerned this apparent gimme relates to those of us that spend most if not all of the year on the bench. (This is why FA talked about high salaries - the only other way of making any meaningful loss in MyCo).

[tino]

Firstly - yes, if your company suffers a loss for tax purposes this year, then you can carry it back to last year and get back some of the corporation tax previously paid.

Remember - dividends do not count as an expense for the company so drawing dividends will not create a taxable loss. If you are drawing salary through a PAYE scheme, yes, this can create a taxable loss.

However - watch the relative tax rates. There is no point drawing a salary and creating a personal tax liability at 20% or 40% plus NI in order to get back tax paid by the company at a rate of 20%.

Be careful drawing dividends if you do not have cumulative earnings in the company. (Look on the company balance sheet, under capital and reserves, for the profit and loss account. Whatever last year's balance was, plus income [U]after tax[U] for this year, can be drawn out as dividends. If you draw more than this you could run into problems.)

If your loss exceeds the profit earned last year, you can carry it back to the previous 2 years, up to a max of £50k. I can't imagine many contractors being in this situation, unless you continue drawing a large salary to create the loss, which, as I've said, may not make sense.

Hope this helps a bit.

thanks, rather confusing though isn't it

[Friendly Accountant]

A bit to think about here

Firstly - yes, if your company suffers a loss for tax purposes this year, then you can carry it back to last year and get back some of the corporation tax previously paid.

Remember - dividends do not count as an expense for the company so drawing dividends will not create a taxable loss. If you are drawing salary through a PAYE scheme, yes, this can create a taxable loss.

However - watch the relative tax rates. There is no point drawing a salary and creating a personal tax liability at 20% or 40% plus NI in order to get back tax paid by the company at a rate of 20%.

Be careful drawing dividends if you do not have cumulative earnings in the company. (Look on the company balance sheet, under capital and reserves, for the profit and loss account. Whatever last year's balance was, plus income [U]after tax[U] for this year, can be drawn out as dividends. If you draw more than this you could run into problems.)

If your loss exceeds the profit earned last year, you can carry it back to the previous 2 years, up to a max of £50k. I can't imagine many contractors being in this situation, unless you continue drawing a large salary to create the loss, which, as I've said, may not make sense.

Hope this helps a bit.

[tino]

I wonder if any accountants are lurking? Maybe someone can enlighten us??

I know Alan from NW often posts on here.

I’ll post another thread asking them to take a look.

good man

[gingerjedi]

I wonder if any accountants are lurking? Maybe someone can enlighten us??

I know Alan from NW often posts on here.

I’ll post another thread asking them to take a look.

[tino]

I'm confused about this also, I've not worked this tax year and my Ltd only has the corp tax for 2008-2009 left in the accounts.

Can I continue to draw a salary? What happens come 31st December when there’s no money?

Or am I talking about something different and illegal?

we're talking about the same thing, just none of us knows what the rules are

i believe you can spread your corp tax payments though

[gingerjedi]

I'm confused about this also, I've not worked this tax year and my Ltd only has the corp tax for 2008-2009 left in the accounts.

Can I continue to draw a salary? What happens come 31st December when there’s no money?

Or am I talking about something different and illegal?

[kookachoo]

So let me get this right - if at the end of this gig, I've invoiced for £25k. As long as my company expenses are £26k for the year, I've made a loss and then I can get the relief?

[Solidec]

as i understand it, Profits from previous 3 years can be offset against losses in future years.

I am in a similar position as of right now, no income so far in 2009/2010, if it stays this way, ie a net loss after director's salary, expenses, then i can get a corp tax rebate from hmrc. Standard practice in most ltd scenarios when there are net losses year on year.

[tino]

Ok then

How does it work? I have sent an email to my accountants but I thought I might punt a question here too.

Last accounting year - good profit made.

This year - no income but still paying all company expenses (including salaries etc.)

I make that a loss for this year so far.

Now - how do I offset the corporation tax I have to pay in October for last year's profits against this loss?

Or have I got this all asre about face?

Are you me? Also very interested in the answer to this.

I've additionally paid corporation tax on dividends and we don't have the funds in the bank to lift them (i think)

[Jubber]

Ok then

How does it work? I have sent an email to my accountants but I thought I might punt a question here too.

Last accounting year - good profit made.

This year - no income but still paying all company expenses (including salaries etc.)

I make that a loss for this year so far.

Now - how do I offset the corporation tax I have to pay in October for last year's profits against this loss?

Or have I got this all asre about face?