Can this years loses get you last years CT bacK?

[Gordon Brown]

Not withstanding that one cannot run a business that one knows is intendeding to make a loss, but I understand that if a loss was made this year but that a profit upon which CT had been paid had been made in previous years, that some of the CT would be returned?

[Eric Mc]

Yes.

Current year's loss can be carried back one year.

Alternatively, it can be carried forward against future profits.

[Gordon Brown]

Eric Mc said:

Yes.

Current year's loss can be carried back one year.

Alternatively, it can be carried forward against future profits.

So, that would apply a small business owner that has a period of illness leading to a loss, but I recall that you can't deliberately make a loss, for example taking 12 months out to travel and the business earning nothing whilist still drawing a salary leading to a loss?

Is it common for small businesses in the last few year before retirement to make a loss as the owner kicks back and doesn't chase new business? Do HMRC view with suspicion businesses that are in profit one year and los the next in some sort of cycle?

[Eric Mc]

Why would a director want to draw a salary, thereby creating a loss, possibly reducing or cancelling the CT bill, but paying higher PAYE and NI costs on the salary instead?

[Gordon Brown]

Eric Mc said:

Why would a director want to draw a salary, thereby creating a loss, possibly reducing or cancelling the CT bill, but paying higher PAYE and NI costs on the salary instead?

I am thinking about £5.3K for him and his good lady.

[Gordon Brown]

Eric Mc said:

Why would a director want to draw a salary, thereby creating a loss, possibly reducing or cancelling the CT bill, but paying higher PAYE and NI costs on the salary instead?

I am thinking about £5.3K for him and his good lady.

[Eric Mc]

Presumably to take him and the Mrs up to the tax and NI limits?

[Gordon Brown]

Eric Mc said:

Presumably to take him and the Mrs up to the tax and NI limits?

Yes Eric, perhaps in that wind down to retirement. I don't think my own business has any real 'sell on ' value because it sells only my very niche skills, so selling it as a going concern at the end of my working life probably isn't an option so if it ran at a loss for a few years by me not chasing new work would HMRC see that as deliberately making a loss?

I recall an art gallery in a posh street in Belgravia where I used to live (company flat) where the girl who ran it turned up at 11am in her soft-top, closed for a 2 hour lunch and closed at 4pm. Never saw a custoner in there in 3 years except for an occasional champagne early evening thing. I am guessing that the probable loss (rent, company car, wages) was offset against profit from elsewhere?

[Eric Mc]

The Revenue will sometimes challenge an activity and claim that it isn't a true business and more in the way of a hobby if it consistently turns in losses.

However, just because a business can't make profits does not mean it isn't a business. The tax definition of a business is "an activity conducted with a view to making a profit". It doesn't actually have to succeed.

However, if a business is making consistent losses, the proprietor might need to argue convincingly to the Revenue that he/she indeed is really TRYING to make a profit.