Are you allowed to run a business at a loss?

[UKSBD]

Are you allowed to run a business at a loss if it has sufficient reserves from previous years and if so, is there any time limit for how long you can do this?

 

[Awinner2]

Can't see why not providing it is your company. As long as you can pay the business debts when due it's up to you surely?

 

[KM-Tiger]

I think the test would be solvency rather than time.

 

[Mr D]

Some businesses have run at a loss for several years before getting back into profit.
Some show an annual loss every year and that's all you ever see.

 

[DavidWH]

Some businesses have run at a loss for several years before getting back into profit.
Some show an annual loss every year and that's all you ever see.

According to companies house, we've been making a loss for years. I've had one supplier we tried to open an account with, tell me we've been trading insolvent for years

We merged two sole traders into one Ltd Co, the amortisation and depreciation on the goodwill and assets alone, then chuck in the DLA for the value of the goodwill my dad bought into the company, it skews all the figures on paper. I think that's right the accountant has explained it loads of times

Yet we've a healthy cashflow, and still end up paying CT each year.

 

[Mr D]

According to companies house, we've been making a loss for years. I've had one supplier we tried to open an account with, tell me we've been trading insolvent for years

We merged two sole traders into one Ltd Co, the amortisation and depreciation on the goodwill and assets alone, then chuck in the DLA for the value of the goodwill my dad bought into the company, it skews all the figures on paper. I think that's right the accountant has explained it loads of times

Yet we've a healthy cashflow, and still end up paying CT each year.

Yes on paper can show loss when reality is profit.

British Airways, Fortnum & Mason, Amazon - all big companies with multiple years in a row of losses yet all capable of keeping going.
I dare say some of the commercial landlords will be making a loss about now for a few years.
And some startups may shut down after years of trading without ever showing a paper profit - as you say skewed figures due to other accepted factors.

 

[Ben F]

Are you allowed to run a business at a loss if it has sufficient reserves from previous years and if so, is there any time limit for how long you can do this?

Remember, there is light under the cloud. So my answer is YES.
A loss isn’t any reason to throw a party, but you can use it to cut your taxable income and reduce your tax bill. Here’s how:

• Set the loss against any other income you have, including from savings. This cuts the tax bill payable on this other income.
• Set the loss against income from the previous tax year. This will usually generate a repayment.
• In your first four years of trading, you can set your loss against income from all three previous years.
• Set your loss against future profits.
• Wind up your business. If it’s made a loss in your final year, set it against the previous three years’ profits.

 

[Lisa Thomas]

An unsatisfied Statutory Demand, a negative Balance sheet, an outstanding CCJ or being unable to pay debts as and when they fall due are all formal definitions of insolvency.

Losses can be a sign of insolvency, but do not necessary mean a Company is insolvent (based on the Insolvency Act definition).

In this case the figures need to be monitored in case the reserves will become insufficient to meet current and contingent liabilities.