Don’t Loose Your Loses!

Are you carrying forward your losses carefully?

The recent First-tier Tribunal case of Amah v Revenue & Customs [2014] UKFTT 1084 (TC) highlights a problem when a loss making trade changes in a significant way. The same problem can arise when a trading company changes ownership. Losses can only be carried forward against future profits of the same trade, so it is important to be aware of what is regarded as a change in the nature of a trade.

What is same trade?

If you make losses in a trade (or a profession or vocation), then for income tax purposes you can carry those losses forward against future profits you make in the same trade. This applies only for as long as you carry on the same trade.

The anti-avoidance rules for losses when a company changes ownership are complex, but one aspect involves a ‘major change in the nature or conduct of the trade concerned. If this takes place within three years either side of the change of ownership, any losses brought forward are disallowed.

The legislation goes on to define a major change as including: ‘a major change in the type of property dealt in, or services or facilities provided in, the trade, or a major change in customers, outlets or markets of the trade’.

A change in the nature of your trading activity can mean you lose your losses — if this is likely to happen, get in contact with us to see if it is possible to use them up and save reduce your future tax liability.

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