Loss Relief

[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?

[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)

[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.

[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?

[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?

[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 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 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

[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]

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