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Taxing problem of non-trading company

At a recent Tax Discussion Group meeting, we discussed a client query which concerned whether a company had ceased trading or not, together with the tax implications for the company and its director.

November 2018

The accountant explained to the TDG that his client had not received any taxable income for over 18 months. During this period the company’s director had continued to receive remuneration and also been looking for suitable work.

The discussion covered the income tax & PAYE implications for the director as well as the company tax consequences. For corporation tax purposes the company had made losses over two accounting periods, which they would be looking to offset against future trading income. In this case the company had no additional trading losses which had arisen before the past two years. It was pointed out that the loss relief rules for trading losses changed from 1 April 2017.

It was noted that some of the trading losses were for period to 31 March 2017 and hence only able to be offset against future trading income if not used in the period, whereas the trading losses after this date were able to be offset against taxable income.

Alternatively, if the trade had ceased then the trading losses of the two years could be carried back against the preceding three year’s taxable profits. Any such terminal loss relief claim would need to be made within two years of the end of the accounting period for the loss.

It was also noted that the terminal loss relief legislation does not necessarily involve the company being dissolved or even entering administration, and hence it is a useful tax relief mechanism to realise assets in a company before reinvesting them in non-trading assets.

For the personal tax, there was no distinction regarding whether the company was trading or not as the director would still be subject to employment taxes on his salary and benefits. There was some discussion regarding whether the company and the director could claim that the salary was declared in error and amend the company’s payroll submissions. It was felt that while there is a mechanism to correct or amend such submissions, in this instance the salaries paid covered a full tax year and hence it would be difficult to make any such amendments in this case.

Each month (with the exception of July and August) the Tax Discussion Groups (TDG) in Croydon and South East London meet to discuss client tax issues on a no-names basis. These meetings are free to attend & normally cover over a dozen tax issues raised by those attending.

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