Time limit on writing off losses against corporation tax

[Redder Than Red]

hi,
Is there any time limit on writing off trading losses when it comes to corporation tax?
To be more specific, manufacturing company (printing), in business 40 years. Made a loss for 9 of the last 10 years but due to make a very large profit this year.
So can I write off this years profits against the many previous years of losses or is there a limit on how far back you can go when doing this?

I have received conflicting information from 2 parties I asked. One said to use pension/capital purchases etc to run down the forthcoming corporation tax bill due to time limit on writing off previous losses whereas the other said the many losses suffered over the past number of years will cancel out this years corporation tax bill so there's no need to do anything.

Can anyone please clarify? Thank you.

 

[ClubMan]

Surely you have an accountant to assist with stuff like this?

 

[Redder Than Red]

hi Clubman, sorry yes I do, they were one of the parties mentioned above. And I'm not meaning to doubt them, however it's an important issue for me and the other conflicting advice also came from someone who I thought was very well up on these matters so basically I'm just looking to put my mind at rest about which is correct.
My apologies if it's a bit of a daft question. I also checked on revenue website and it appeared to me that there is no time limit (however it mentioned "exceptions for some businesses"). I'm merely making sure here before I fire ahead.

 

[T McGibney]

hi Clubman, sorry yes I do, they were one of the parties mentioned above. And I'm not meaning to doubt them, however it's an important issue for me and the other conflicting advice also came from someone who I thought was very well up on these matters so basically I'm just looking to put my mind at rest about which is correct.
My apologies if it's a bit of a daft question. I also checked on revenue website and it appeared to me that there is no time limit (however it mentioned "exceptions for some businesses"). I'm merely making sure here before I fire ahead.

Ask your accountant again if you're unsure. Although it sounds like their advice to you is on the button.

 

[cloughy]

Both are correct, you could reduce the taxable profit by the mentioned pension/capital allowances, you will still have the losses carried forward, or you could use the losses carried forward to reduce corporation tax. I'm not aware of any time-limit to use previous losses.

 

[Gordon Gekko]

hi Clubman, sorry yes I do, they were one of the parties mentioned above. And I'm not meaning to doubt them, however it's an important issue for me and the other conflicting advice also came from someone who I thought was very well up on these matters so basically I'm just looking to put my mind at rest about which is correct.
My apologies if it's a bit of a daft question. I also checked on revenue website and it appeared to me that there is no time limit (however it mentioned "exceptions for some businesses"). I'm merely making sure here before I fire ahead.

Which party gave each piece of advice?

 

[Redder Than Red]

Which party gave each piece of advice?

Accountant said no time limit that they're aware of so stop worrying. Contradicted by someone who usually is very much on the ball and said you can only carry losses forward for short window of time so use pension instead/capital/etc

 

[Redder Than Red]

Both are correct, you could reduce the taxable profit by the mentioned pension/capital allowances, you will still have the losses carried forward, or you could use the losses carried forward to reduce corporation tax. I'm not aware of any time-limit to use previous losses.

Thanks Cloughy, fair play, much appreciated. Yes this is beginning to look like it is indeed the case that there's no time limit so hopefully that's the problem solved now. Thanks!

 

[Gordon Gekko]

Accountant said no time limit that they're aware of so stop worrying. Contradicted by someone who usually is very much on the ball and said you can only carry losses forward for short window of time so use pension instead/capital/etc

There is no time limit. It’s a wishy-washy answer from the accountant, but I’d still trust him or her more than the local know-all.

 

[T McGibney]

To be more specific, manufacturing company (printing), in business 40 years. Made a loss for 9 of the last 10 years but due to make a very large profit this year.

This sounds a bit odd. Has the trade changed materially to the point that it could be argued that it's a new trade altogether? If so, the prior year losses may not be allowable.

 

[Redder Than Red]

This sounds a bit odd. Has the trade changed materially to the point that it could be argued that it's a new trade altogether? If so, the prior year losses may not be allowable.

hi, good question! But no, no real change of direction in trading type. Long story but there was an ongoing insurance/legal situation and the bottom line is that a large part of the income from it is to be treated as trading income according to both legal and accounting people (also a part of it is capital gains too but that section is a different matter and we'll be paying that, not relevant to this part of the discussion). Well that and also a large pick up in trade due to some good new accounts and getting up at 4.45am and working til crazy hours has helped turn it around too.

 

[T McGibney]

hi, good question! But no, no real change of direction in trading type. Long story but there was an ongoing insurance/legal situation and the bottom line is that a large part of the income from it is to be treated as trading income according to both legal and accounting people (also a part of it is capital gains too but that section is a different matter and we'll be paying that, not relevant to this part of the discussion). Well that and also a large pick up in trade due to some good new accounts and getting up at 4.45am and working til crazy hours has helped turn it around too.

Ok thanks, it's not beyond possibility that your accountant has good reason to qualify their opinion. There's a limit to the usefulness of AAM in answering questions like this when there is a backstory involving complexities of which contributors are unaware.

You, or your accountant, probably need to be talking to a good tax consultant rather than on an online forum.

Your contact whom you say is claiming there's some sort of time limit on claiming CT losses is manifestly incorrect in that regard although that may not be the issue at all here.

 

[Redder Than Red]

Ok thanks, it's not beyond possibility that your accountant has good reason to qualify their opinion. There's a limit to the usefulness of AAM in answering questions like this when there is a backstory involving complexities of which contributors are unaware.

You, or your accountant, probably need to be talking to a good tax consultant rather than on an online forum.

Your contact whom you say is claiming there's some sort of time limit on claiming CT losses is manifestly incorrect in that regard although that may not be the issue at all here.

Thanks T McGibney. We had dealt with a tax specialist and solicitor (it was solicitors own tax specialist) and he said the money will need to be treated as trading income and therefore liable for corporation tax. He said it had to be treated no differently than any other form of trading income.
The accountant said they agree with that too.
But then this issue popped up about how far back I could go when writing it off against losses. The accountant seemed confident that we can. But they just seemed a bit too casual about it for my liking which is why I started asking around for second opinions as it's quite a lot of money to be throwing away if they were wrong.

 

[T McGibney]

Thanks T McGibney. We had dealt with a tax specialist and solicitor (it was solicitors own tax specialist) and he said the money will need to be treated as trading income and therefore liable for corporation tax.

But then this issue popped up about how far back I could go when writing it off against losses.

Then ask the tax specialist the loss relief question. It's that simple.

 

[Redder Than Red]

Then ask the tax specialist the loss relief question. It's that simple.

Yes I will contact the solicitor we dealt with and ask him can I have the direct contact details for the tax specialist that he had liaised with for us previously, probably worth it for peace of mind.

 

[T McGibney]

Yes I will contact the solicitor we dealt with and ask him can I have the direct contact details for the tax specialist that he had liaised with for us previously, probably worth it for peace of mind.

I wouldn't even ask their permission if it were me. It's none of your solicitor's business and it's no harm to have an independent relationship with the tax specialist in case you need them again.