Losses Carried Back & Carried Forward

[khawerjavedqazi]

My name is Khawer Javed Qazi.I m a student of ACCA.I was studying the Subject of Business Taxation.In this subject I got a

problem which I would like to share with you.I was studying the topic of "Relief for Trading Losses" , in which I faced a

problem.I hope you will help me.

...............................Year to----6 months to----Year to------Year to
...............................30.9.00-----31.3.01------31.3.02-------31.3.03
...................................£................£..................£...................£..
Tra.P/(L)....................14,000........(10,000).......23,500..........(25,000)
Sch.A...........................800............400.............800...................800
Chargeable
Gains............................-...............700...............-.................1,900

Charges On Income
Gift Aid.........................200............200............200....................200

There was a loss brought forward under S393(1)ICTA 1988 at 1 October 1999 of £7000.

Calculate the Profits Chargeable to Corporation Tax assuming that Loss Relief is claimed as early as possible.

This was the whole question.For me it seems to be a simple question but there are figures in the answer that might be miss printed but to get another Opinion I would like to show you the Answer.
For confusing Figure I m using "*".If it is an apportionment then please tell me the basis for apportionment.

...............................Year to----6 months to-------Year to----------Year to
...............................30.9.00-----31.3.01----------31.3.02-----------31.3.03
...................................£................£..................£...................£..
Tra.P/(L)....................14,000...........-..................23,500....................-
S393(1)Relief..............(7,000)
Sch.A...........................800............400................800.....................800
Chargeable
Gains............................-...............700...............-............................1,900
...............................--------------- ------------- ----------- -------------
................................7,800...............2900*...........24.300...............5100*
S393A Relief..............*(7,100)............(2900)*..........(19900)*............(5100)*
Charges On Income
Gift Aid.......................(200)................Nil..............(200)....................Nil
..........................-------------.....................------------
................................500................................4200

Please Tell me the reason for the confusing figure which are in (*).on what basis the S393A Relief is given.
And why the figures of "2900" and "5100" are added in the place of losses as profits.

Edited by - khawerjavedqazi on Aug 07 2003 071916 AM

Edited by - khawerjavedqazi on Aug 07 2003 072413 AM

[smraza]

dear khawar,
your question is very complicated or it seems complicated due to the formatting, can you restate the question, but please first of all preview your message before posting it, then it will become more easy to understand that what kind of problem you are facing.

S M R

[Pervez]

Hi!
For the benefit of those who are not in ACCA program, could u state S393(1) & S393A as they are written (I mean the exact language).
One thing is obvious, after taking the loss back, the taxable income for the year is bumped upto the remaining loss.(Out of 10,000, 7100 was carried back and the income for the period was bumped up to 2900. Same happened in the next year) The situation will be clear if u can state the actual sections.
Regards.



Edited by - Pervez on Aug 08 2003 060203 AM

[khawerjavedqazi]

Assalam O Alaikum
Yes Pervez you are right here that the loss of 10,000 and 25000 are apportioned between four accounting periods.I can also understand this, but the main problem is that what are the basis for apporionment of these losses to the two accounting periods.Why 7100 is given to 30.9.00 and 2900 to 31.3.01.
Secondly if you see the answer you will see that there are incomes in respect of 2900 and 5100 which are marked by "*".From where these figures arise.

S393(1) is for the relief of previous losses carried Forward.
S393A is for the current year Losses which arise recently.

[Pervez]

Hi Khawer!
I understand that S393(1) and S393A are for relief in respect of current or previous year. But we need the actual text to interpret and apply them. If u can post them on the board,we can easily determine that. I don't have copy of the act u refered to in ur question. So again we need the exact text of sections before we proceed.
Thanks

[khawerjavedqazi]

Pervez this para was written at the end of the above question in the book
Conclusion
Where a company incurs a trading Loss it may claim under S393A ICTA1988 to set the loss against the total profits (before charges) of the loss making Accounting period.
Having relieved the loss against current profits, the company may claim to set the loss against the total profits of the twelve months preceding the accounting period producing the loss. Any loss not relieved under S393A ICTA 1988 is carried forward under S393 ICTA 1988 and set against future profits of the same trade.

----------------------------------------------------------------------------------------------------------------------------------




Carry Forward of Trading Losses (S393 (1)) ICTA 1988
----------------------------------------------------
Where a company incurs a loss, it may carry the loss forward and set it off against profits from the same trade in future accounting periods.

The loss can be carried forward indefinitely, there is no time limit for obtaining the relief but it must be set off against first available trading profits.

A claim to establish the amount of loss available to carry forward should be made within six years of the end of the loss making accounting periods.
----------------------------------------------------

Loss Relief Against Total Profits (S393A ICTA 1988)
---------------------------------------------------
Where a company incurs a trading loss it may claim to set the loss against total profits of the (before charges) accounting period producing the loss.

Any trading loss remaining unrelieved may then be carried back and set against total profits (before charges) of accounting periods of the twelve months preceding the loss making period.

If a company has prepared accounts for a period other than twelve months during the twelve months preceding the loss making period , then the results of the accounting period that fall partly outside the twelve month period are apportioned .Loss relief is limited to the proportion of the profits which fall with in the twelve month period.

A claim must be made to relieve the loss against profits arising in the loss making period before a claim can be made to carry the loss back to preceding period.

Companies can claim to relieve the loss against current year profits and not claim to carry the loss back against earlier profits. However, if the loss is carried back, it must be relieved as far as is possible within the carry back period.

If a claim is made to carry back the loss, the set of is against later periods before earlier periods. This is relevant where there is an accounting period of less than twelve months immediately before the loss making period.

Any loss remaining unrelieved after a S393A ICTA 1988 claim is carried forward under S393 (1) ICTA 1988 and relieved against future trading profits of the same trade.

A claim for loss relief under S393A ICTA 1988(either against current year profits or carried back to the previous twelve months) must be made within two years of the end of the loss making accounting period.

A claim under S393A ICTA 1988 must be for the whole loss, including capital allowances. The amount of the loss may be reduced by not claiming the full amount of capital allowances available. A company may claim any amount of capital allowances, up to the full amount, a reduced claim would leave a higher tax written down value on which to claim allowance next year.
Dear Pervez there is a relevant statement regarding carrying back and forward of losses which is relevant to the question under discussion.
“Losses carried forward under S393 ICTA 1988 are set off before loss claims against current year profits or losses carried back under S393 ICTA 1988”

[Pervez]

Hi Khawer!
Just to let u know, i am not in ACCA program. My efforts here are totally voluntary. I did some research and came up with the following.
I did manage to trace ICTA 1988 on a website, it is in precise legal language (as it should be)Man those Englishman like to make life complicated for everyone. Also there was an exact same type of question in June 2002 exam paper. If u don't have past exam papers they are on ACCA web site. I would solve this as follows

...........<b>Year ended....Period ended....Year ended....Year ended
..............30 Sep'00......31 Mar'01......31 Mar'02.....31 Mar'03</b>

Trad Profits.....14,000......------.......23,500.........----....
Loss relief
under s 393(1)....7,000......------.......1,800(N2).....----....
Loss relief
under s 393(9)....-----......------........ 200(N3)......----....
................-------.....---------........--------......------...
.....................7,000....----...........21,500.......------...
Sched A...........800 .......400............. 800........-----800.
................--------.....--------.......-------....... ---------
.....................7,800.....400...........22,300.............800.
Gains...........-----........700...........------...........1,900.
..................------......-------.......--------........-------.
.....................7,800......1,100.........22,300 .......2,700.
Trad charges. ....200......-----.............200...........-----.
.................------......-----..........--------.........-------
.....................7,600......1,100.........22,100 .......2,700.
Loss relief
s..393(A).........7,100(N1)..1,100.........22,100...........2,700.
.................--------....-----..........-------.........--------
PCTCT............ 500......-----..........-------.........--------
.................========...======..........=======........ ========

N1 Since the period from which the loss is being carried back was only six months, therefore, the relief is restricted to 1/2 the profits before charges 14,000+200=14,200/2=7.100.
N2 Total loss of 10,000 for period ending March 31, 2001 is utilized by reducing profits of 2001 of 1,100 and loss c/b to 2000 of 7,100. This left only 1,800 which is c/f to y/e March 31, 2002.
N3Trade charges of a loss year are c/f and deducted against the trading profits of the year loss is being c/f to under s 393(9).
<b> The rest of the figures are easy to follow </b>
Hope i help u in some way to understand the situation.
Take Care




Edited by - Pervez on Aug 10 2003 081014 AM

Edited by - Pervez on Aug 10 2003 082102 AM

Edited by - Pervez on Aug 10 2003 083628 AM

Edited by - Pervez on Aug 10 2003 084514 AM

[khawerjavedqazi]

Dear Pervez
Assalam O Alaikum
First of all I would like to thank you on such a good and satifactory help and then I would like to appreciate you on your greatest effort for me.
I also agree with the same situation in the answer but if we look at the text book we would see that there are quite confusing figures.I think that I can say that the figures in the book are wrong! may I?
Now I would like to know about you what are your hobbies,and what are your activities of life.



Edited by - khawerjavedqazi on Aug 10 2003 70729 PM<b></b>

Edited by - khawerjavedqazi on Aug 10 2003 81418 PM