ExpertMedium2 marksMultiple Choice
ACCA · Question 25 · Income tax and NIC liabilities
Section B - Case 2 (GreenRoots LLP)
Correction to previous question's logic applied here: Assume GreenRoots LLP ceases trading on 31 March 2024, generating a terminal loss of £30,000 for Tom.
Against which years can Tom carry back this terminal loss?
Section B - Case 2 (GreenRoots LLP)
Correction to previous question's logic applied here: Assume GreenRoots LLP ceases trading on 31 March 2024, generating a terminal loss of £30,000 for Tom.
Against which years can Tom carry back this terminal loss?
Answer options:
A.
Against his general income of the current and previous tax year only.
B.
Against his trading profits of the tax year of cessation and the three preceding tax years, on a LIFO basis.
C.
Against his trading profits of the previous 12 months only.
D.
It cannot be carried back; it is lost upon cessation.
How to approach this question
Recall the rules for terminal loss relief (cessation of trade). It can be carried back 3 years against profits of the same trade.
Full Answer
B.Against his trading profits of the tax year of cessation and the three preceding tax years, on a LIFO basis.✓ Correct
When a trade ceases, a terminal loss can be calculated. This loss can be carried back and set against the profits of the same trade for the tax year of cessation and the three preceding tax years. It must be applied on a Last-In, First-Out (LIFO) basis (i.e., taking the most recent years first).
Common mistakes
Confusing terminal loss relief (3 years against trading income) with standard sideways relief (1 year against general income).
Practice the full ACCA TX — Taxation Practice Exam 2
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