Bank Savings Interest Received when Loss Making
- Thread starter numbersrule
- Start date
Depends on how much interest is received and how much the loss is but a trading loss can be offset against interest received.
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It is similar to your query on qualifying charitable donations. Trading profit is one source of income. Bank interest is another source. Donations is one type of allowance. They are treated separately for corporation tax purposes. The importance is in respect of the ability to offset one against another. Pre 2017 there were restrictions on how or if one could be offset against another but those restriction are eased. Well until Rachel figures it out.
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Without drilling in to the detail it is difficult to say. Some 'trades' have their profits ringfenced. In theory you could choose not to utilise a loss in order to carry forward and offset when there a higher marginal tax rates; depending on prevailing rules.
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Did you not get your accountant o explain it at the time? ou really need to be on top of, and uunderstand, your business.
I deliberately keep my trading profit as low as possible to minimise CT, but I make an operating loss.
You must have had a trading profit to pay CT, but an operating loss after disallowed expenses were added back in.
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- Original Poster
- #11
Hi DontAsk
It's not my business, it's a business I do the bookkeeping for.
To be honest with you I'm getting a bit confused by all this 'adding back in' disallowed expenses. It was the same logic in my other thread about an outgoing Charitable Donation.
What seems strange to me is that as a disallowed expense is supposed to be entered into the Accounts, then it means the Profit is less than it would have been if the expense had never occurred. So, surely, if you then 'add the expense back in' that means the expenditure reduces and the Profit increases.
So why would a 'Trading Profit' turn into a Loss when an expense is 'added back in'?
The business in question doesn't have a separate trading arm, so for them, trading profit and operating profit are one and the same.
Anyway, this thread has gone a bit off track because it's supposed to be about Tax on Interest on Bank Savings!
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I wonder if you’re not distinguishing sharply enough between statutory accounts and tax calculations?
The purpose of the first is (mainly) to ensure that all and sundry know what the assets available to creditors are. Every paperclip and stamp needs to be included
The second has the completely different purpose of telling HMRC what the company owes them. Thanks to wave after wave of lobbying, there are allowed expenses, disallowed expenses, carveouts, special cases, etc etc ad nauseam.
HMRC takes as its starting point the “statutory” profit (I just made that term up) ie the profit on a “true and fair view” of all the company’s transactions. Then (and only then) you put your left foot in, left foot out, etc, etc, to get the tax due - but the calculations are always referred back to the brute profit on a true and fair view.
The only snag in this neat schema is that once you know the tax due, you have to include it in the final statutory accounts, because it reduces the assets available to creditors. So the calculations can look a bit circular, but really it’s more like a baton pass.
No idea if that’s clear or helpful…
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The statutory accounts are based on your accounting ledgers and is all inclusive. It gives you your accounting profit or loss. Your tax computation is a separate exercise but uses your figures from your accounts as its starting point.
The term ‘adding back’ is in reference to getting from, for example, the accounting profits of a trade to the taxable profit or loss of same. Thus for example depreciation is added back because for tax purposes it is not an allowable deduction and then you may include capital allowances instead. ‘Adding back’ does not affect the accounting profit!
Once you have calculated the tax position then this figure is posted into the ledger to record the tax liability as appropriate.
It is also the reason why you need to know what ‘tax losses’ are available to utilise as these are different to any ‘accounting losses.’
Think ‘accounting profit or loss’ and ‘taxable profit or loss’ and know the latter is for a specific purpose.
Hope that helps too.
The term ‘adding back’ is in reference to getting from, for example, the accounting profits of a trade to the taxable profit or loss of same. Thus for example depreciation is added back because for tax purposes it is not an allowable deduction and then you may include capital allowances instead. ‘Adding back’ does not affect the accounting profit!
Once you have calculated the tax position then this figure is posted into the ledger to record the tax liability as appropriate.
It is also the reason why you need to know what ‘tax losses’ are available to utilise as these are different to any ‘accounting losses.’
Think ‘accounting profit or loss’ and ‘taxable profit or loss’ and know the latter is for a specific purpose.
Hope that helps too.
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For a firm to operate it needs resources and these resources are supplied by someone. The resources are assets and are supplied by the owner (known as Capital) or some other indebtedness (known as Liabilities). Therefore Assets = Capital + Liabilities.
If you follow this and the principles of accounts you’ll never go wrong despite garbage spilled out such as Statement of Financial Position or Statement of Comprehensive Income. Balance Sheet and Profit and Loss account are enduring, so too are the principles of accounts.
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I’ve found this useful:
Oxford Dictionary Accounting - AbeBooks
A Dictionary of Accounting (Oxford Paperback Reference) and a great selection of related books, art and collectibles available now at AbeBooks.co.uk.
www.abebooks.co.uk
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