Could my wife`s accountant be wrong?
Discussion
Mrs had a company for 5yrs. It wasn’t making that much so we decided to voluntary liquidate it as 99% of the debt outstanding, was her initial investment. The only claims that were made were for a phone contract and something sundry.
The liquidator advised she could claim her loss from her following years income from her investments.
Her accountant has just advised she can’t and has tax to pay from the earnings of her property investments.
Is he correct as we thought a loss can be carrried forward. She invested into a company that failed, so therefore is a loss. Or isn’t it as black and white as this?
Am I correct?
The liquidator advised she could claim her loss from her following years income from her investments.
Her accountant has just advised she can’t and has tax to pay from the earnings of her property investments.
Is he correct as we thought a loss can be carrried forward. She invested into a company that failed, so therefore is a loss. Or isn’t it as black and white as this?
Am I correct?
If there’s a trading loss in the company, it remains in the company. Your wife cannot use this loss against her own income. The company can offset the loss against its current year profits, and then profits of the previous 36 months.
If your wife has made a loss on her shares in the company, she can offset the (capital loss) against capital gains of the same tax year, and carry forward any excess to offset capital gains of future years. She cannot offset a loss on the shares against income.
Edit - there used to be income tax relief for capital losses on certain shares. I think that was abolished a couple of years ago, but need to check.
If your wife has made a loss on her shares in the company, she can offset the (capital loss) against capital gains of the same tax year, and carry forward any excess to offset capital gains of future years. She cannot offset a loss on the shares against income.
Edit - there used to be income tax relief for capital losses on certain shares. I think that was abolished a couple of years ago, but need to check.
Edited by Alpinestars on Tuesday 29th January 09:22
So 5 years ago your wife bought.founded a Ltd company. Probably starting with £100 of shares, so the investment for capital gains/losses was £100, then the company cashflow was funded with a Directors Loan (presuming your wife was Director and Shareholder as 2 separate and distinct things).
The loss you are asking about is presumably the Directors Loan account?
The loss you are asking about is presumably the Directors Loan account?
Mr Overheads said:
So 5 years ago your wife bought.founded a Ltd company. Probably starting with £100 of shares, so the investment for capital gains/losses was £100, then the company cashflow was funded with a Directors Loan (presuming your wife was Director and Shareholder as 2 separate and distinct things).
The loss you are asking about is presumably the Directors Loan account?
She founded the company with a business partner with the £100 shares, then 3 yrs ago the business partner left and she put in £15k as a directors loan to help cashflow at the time. None of this £15k was ever paid back to her. The loss you are asking about is presumably the Directors Loan account?
cerberaperv said:
Mr Overheads said:
So 5 years ago your wife bought.founded a Ltd company. Probably starting with £100 of shares, so the investment for capital gains/losses was £100, then the company cashflow was funded with a Directors Loan (presuming your wife was Director and Shareholder as 2 separate and distinct things).
The loss you are asking about is presumably the Directors Loan account?
She founded the company with a business partner with the £100 shares, then 3 yrs ago the business partner left and she put in £15k as a directors loan to help cashflow at the time. None of this £15k was ever paid back to her. The loss you are asking about is presumably the Directors Loan account?
https://www.gov.uk/government/publications/debts-a...
After reading the HMRC guidelines, example 3 below is exactly her scenario. So am I right in saying that her accountant is incorrect, if he`s saying her loss cannot be deducted from this years tax bill.
Example 3
You have lent £12,000 to a company. Having repaid you only £2,000, the company goes into liquidation. The liquidators say they hope to make a payment of 20p in the pound to unsecured creditors but there will be no further payments. You may claim an allowable loss.
Example 3
You have lent £12,000 to a company. Having repaid you only £2,000, the company goes into liquidation. The liquidators say they hope to make a payment of 20p in the pound to unsecured creditors but there will be no further payments. You may claim an allowable loss.
cerberaperv said:
After reading the HMRC guidelines, example 3 below is exactly her scenario. So am I right in saying that her accountant is incorrect, if he`s saying her loss cannot be deducted from this years tax bill.
Example 3
You have lent £12,000 to a company. Having repaid you only £2,000, the company goes into liquidation. The liquidators say they hope to make a payment of 20p in the pound to unsecured creditors but there will be no further payments. You may claim an allowable loss.
Read the title. It’s a capital loss. Example 3
You have lent £12,000 to a company. Having repaid you only £2,000, the company goes into liquidation. The liquidators say they hope to make a payment of 20p in the pound to unsecured creditors but there will be no further payments. You may claim an allowable loss.
http://www.legislation.gov.uk/ukpga/1992/12/sectio...
Edited by Alpinestars on Tuesday 29th January 09:59
An individual can offset a trading loss they have made in a sole trader or partnership business against -
a) other personal income in the same tax year
b) future TRADING profits from the same business
c) past trading profits up to three years IN THE SAME business
As others have said, your wife's loan of money to her own limited company which she now considers to be irrecoverable is NOT a personal TRADING loss so she cannot make use of the various trading loss reliefs outlined above.
The best way for the company to make use of any losses IT has made is to try and trade on so that it makes future profits in which way it can mop up those looses PROVIDING the same trade is being carried out.
a) other personal income in the same tax year
b) future TRADING profits from the same business
c) past trading profits up to three years IN THE SAME business
As others have said, your wife's loan of money to her own limited company which she now considers to be irrecoverable is NOT a personal TRADING loss so she cannot make use of the various trading loss reliefs outlined above.
The best way for the company to make use of any losses IT has made is to try and trade on so that it makes future profits in which way it can mop up those looses PROVIDING the same trade is being carried out.
Just looked at S131 ITA 2007. An election can be made for the loss on shares subscribed for in certain trading companies to be offset against income of the year in which the loss is made and the preceding year.
https://www.legislation.gov.uk/ukpga/2007/3/sectio...
OP, check the conditions in s137 onwards.
https://www.legislation.gov.uk/ukpga/2007/3/sectio...
OP, check the conditions in s137 onwards.
Eric Mc said:
Would a balance on a director's loan account constitute "shares subscribed for"?
I would assume they would normally refer to the actual shares issued by the company to the shareholder and the consideration paid to obtain those shares.
Correct. S151 defines shares as forming part of the ordinary share capital of the company. I would assume they would normally refer to the actual shares issued by the company to the shareholder and the consideration paid to obtain those shares.
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