Corp Tax Losses

[JamieAllen]

Hello

Existing one-man limited company is looking to strike off after 2 years of pretty unsuccessful years of trading and transferring to sole trader to save costs and admin. All debts paid.

Looking at terminal loss relief. As the company has made losses in previous 2 years and has no profits to set the trading losses against, I am right in thinking the losses will be wasted and unutilised? I seem to recall that losses can still be carried forward for relief against future trading profits but if the company is closing down this not an option.

Thanks

 

[Truemanbrown]

Hello

Existing one-man limited company is looking to strike off after 2 years of pretty unsuccessful years of trading and transferring to sole trader to save costs and admin. All debts paid.

Looking at terminal loss relief. As the company has made losses in previous 2 years and has no profits to set the trading losses against, I am right in thinking the losses will be wasted and unutilised? I seem to recall that losses can still be carried forward for relief against future trading profits but if the company is closing down this not an option.

Thanks

Can I ask, is the sole trader performing the same trade as the limited company?

 

[JamieAllen]

Yes, it will be the same trade.

 

[Truemanbrown]

Yes, it will be the same trade.

Then what costs and admin do you think that you are saving by transferring to a limited company?

 

[JamieAllen]

The business currently is a ltd co and ceasing to trade but will trade as a sole trader instead a little later.

 

[Truemanbrown]

The business currently is a ltd co and ceasing to trade but will trade as a sole trader instead a little later.

So why don't you leave the company dormant and when you re-commence trading you will have the losses available to set off against future profits.

 

[JamieAllen]

Because the ltd company route is far too complex for a very small, straight forward business. It shouldn't have been formed in the first place, but that's nothing to do with me! Trying to get an idea of what to do with the terminal losses but looks as if they will be wasted.

 

[Truemanbrown]

You are right that the Terminal Losses will be wasted.

 

[elaine@cheapaccounting]

Limited company doesn't have to be complicated.

A lot of our very 'small' clients run these very easily.

However if the business continues to make a loss (is it a business?) and you have other income then losses can be offset against this income.

This may be useful, info for those that rush into setting up a limited company.

I am never sure if this is so that one can be called a director.

 

[GaryMc]

So why don't you leave the company dormant and when you re-commence trading you will have the losses available to set off against future profits.

Technically, making the company dormant would be a cessation of trade and the losses would be wasted. The company would need to remain active and 'considering opportunities' for the losses to continue to be carried forward.

 

[Tom Egerton]

This is an object lesson for anybody incorporating before they have either a track record of profits or are in a service industry where they are almost certain not to lose money.

Sadly there are many unscrupulous accountants who recommend this route before asking these sorts of questions. Not only are the losses probably lost for all time but a new venture incurring losses as a sole trader might well be able to achieve a tax refund if taxable profits can be identified in the preceding 3 years.

 

[MyAccountantOnline]

This is an object lesson for anybody incorporating before they have either a track record of profits or are in a service industry where they are almost certain not to lose money.

Sadly there are many unscrupulous accountants who recommend this route before asking these sorts of questions. Not only are the losses probably lost for all time but a new venture incurring losses as a sole trader might well be able to achieve a tax refund if taxable profits can be identified in the preceding 3 years.

There are also many people who set up a company without seeking any professional advice too