Surrey International Institute
Dongbei University of Finance and Economics
MAN3102 – Advanced Taxation
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Lecture-4; Week-14a
Academic year 2022 – 2023; First semester
November 26, 2022 1 / 12
IF a self-employed person makes a trading loss
in the basis period for a tax year THEN: (Note 1)
Trading income for the Tax Year of the Loss is, of course, Nil
Tax relief may be claimed in relation to the trading loss
Several forms of loss relief are available
Each relief involves o�setting the trading loss
against the taxpayer’s other income or gains.
Note 1: The sentence contains four very important concepts.
November 26, 2022 2 / 12
Types of Tax Relief for Trade Loss
(A) Carry-forward trade loss relief
(B) Trade loss relief against total income
(C) Early trade losses relief
(D) Terminal trade loss relief
November 26, 2022 3 / 12
(A) Carry-forward trade loss relief
Carry-forward the Trade Loss and set it
against the �rst available pro�ts of the same trade
the maximum possible relief must be taken in each year
any unrelieved Trade Loss can be carried forward
without time limit
but relief must be given in full
Capital Allowances are included in calculating Trade Loss
A taxpayer can claim less than the maximum capital allowances
in order to adjust the amount of a Trade Loss to be carried forward
Question: If we do not claim the maximum Capital Allowances,
what will happen to the unclaimed balance?
November 26, 2022 4 / 12
(B) Set trade loss against Total Income
Set Trade Loss against the:
Total Income in the Year of the Loss, or
Total Income in the Year before the Year of the Loss, or
Total Income of both years
Partial claims are not possible,
the maximum possible amount of Trade Loss should be claimed
Trade loss relief is given against (a) non-savings, (b) Savings,
and (c) Dividends in the way that results in the lowest tax liability
Any loss not relieved against Total Income for a Tax Year may be
carried forward to be set against future pro�ts from the same trade
Any loss not relieved against Total Income for a Tax Year may be
set against any capital gains1 of that Tax year
Trade Losses relieved against capital gains are treated as if
they were capital losses of that Tax Year
1Capital Gains are discussed in Lecture-6 in Week-15
November 26, 2022 5 / 12
(C) Early Trade Losses
Trade Losses – incurred at the beginning of trade –
can be set against future Trading Pro�ts or against Total Income
(as discussed in [A] and [B] above)
Trade Losses incurred in the �rst four tax years may be
carried back against Total Income of the previous three tax years
(starting with the earliest tax year, FIFO)
the maximum possible relief must be given in each year
A claim for relieving early Trade Losses applies to all of
the three years before the Year of the Loss
in other words, the trader can choose Neither the Tax Year,
in which relief is to be given, Nor the amount of relief
A Trade Loss incurred in an overlap period is treated as a loss
of the earlier tax year only
a claim for Early Trade Losses can not be extended to o�set
unrelieved trading losses against capital gains
November 26, 2022 6 / 12
(D) Terminal Trade Loss Relief
Terminal Trade Loss is the loss incurred within 12 months
before the termination (=cessation) of trading
Terminal Trade Loss excludes any loss already relieved
(loss can not be relieved more than once)
The Terminal Trade Loss is calculated as:
1 the trading loss incurred from 6 April
to the date of the cessation of trading
2 The trading loss incurred from 12 months
before the date of cessation to the following 5 April
3 Any available overlap relief
An example follows in a while.
November 26, 2022 7 / 12
(D) Terminal Trade Loss Relief continued
Terminal Loss can be set
against the pro�ts of the same trade
for the Year of Termination, and
against the pro�ts of the same trade
for the previous three tax years
(starting with the most recent tax year, LIFO)
The maximum possible relief must be given in each tax year
amount of relief given in any tax year can not exceed
the trading pro�ts for that year
November 26, 2022 8 / 12
Trade Loss and Personal Allowance
Trade Loss Relief is used before
Personal Allowances are deducted
Personal Allowance can be used only in the Tax Year
to which it relates
Any unused Personal Allowance is lost
Note: If the Trade Income is covered by Personal Allowances,
it will not be bene�cial to claim Trade Loss Relief,
as it wastes the Personal Allowances
November 26, 2022 9 / 12
Limit on income tax reliefs
The aggregate amount of certain speci�ed tax reliefs
which may be deducted from total income in a tax year
is the greater of ¿50,000 and 25% of the taxpayer’s
‘net adjusted total income’ for that tax year
The limit applies to:
1 trade loss relief against total income
2 early trade losses relief
3 post-cessation trade relief
4 relief for losses on shares in unlisted trading companies.
The limit does not apply to:
1 trade losses caused by Overlap relief
2 Trade losses that can be deducted from pro�ts of the same trade
November 26, 2022 10 / 12
Examples and Exercises
Example 12.5
Example 12.6
Example 12.7
November 26, 2022 11 / 12
Thank you very much for attending this lecture
It is time for questions, comments, and suggestions.
(www.menti.com, code: )
November 26, 2022 12 / 12
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