BTC - A couple small questions

Morris1871 Registered Posts: 8 Regular contributor ⭐ 😼 ⭐

I am due to take my BTC (Unit 18) exam tomorrow morning, and there are two small areas I am having trouble with and I was hoping someone here could provide me with a definitive answer.

Question 1 - Income Tax Losses - I understand there are three options for relief (current year, carry back, and future year). However, I am not sure if in which order you can do these. I believe if you choose carry back, you must then do current year and vice versa. However, I am not sure if you are allowed to do just current year, or just carry back, and then future. Could anyone please clarify?

As a side note, I do not understand why you would want to save tax at the highest rate. Surely you would want to save tax at the lowest rate as to pay less.

Question 2 - Capital Allowances - Disposals that are above cost. Could someone please clarify the rules on when to enter the cost value and when to enter the actual disposal proceeds? I believe that at cessation, and for short-life assets, we enter the true disposal value, whether or not it exceeds costs. And for general disposals, always limit to cost.

I've read the correct areas of the book (BPP) but when I review questions/answers it seems the rules change.

Sorry for the long post, hope I explained my problems clearly. I appreciate any help.



  • pirate
    pirate Registered Posts: 469
    Ok losses

    A loss that occurs can be offset by
    Carrying it forward to reduce profits in future years
    The trading loss can be used to reduce total tax payable by offsetting it against taxable income from other sources
    The loss can be carried back against the total income from all sources in the tax year preceeding
    Or if you chose this last option up to 50k can be set of against the previous 2 tax years.

    The order of the options is entirely the tax payers choice and you can do more than 1 of them or just one of them..this is different to corp tax.
    And which one you chose depends on the tax efficiency and using your personal allowances
    If you had 1 year where the total taxable income is £50000, then and the next year you had a trading loss of 20,000 if you took it back then effectively you are reducing the previous years tax to 30,000 which means that you would get a large tax refund since you have paid some of this at 40%.

  • pirate
    pirate Registered Posts: 469
    For disposals

    I think you are confusing capital allowances and chargable gains here
    Capital allowances – the disposal value is put in and any amount that is more is put down as a balancing charge or anyamount less is a balancing amount if its in a pool of its own, otherwise you just deduct it from the main pool

    If you are talking about chargable gains then you always enter the actual disposal less cost value but there are some rules for chattels, part disposal and the cost value you put in can be added to as well
    I am assuming you are talking Trading income here not Corporation stuff as this also gets subject to indexation. I wont go into all the rules as I am not sure if you mean capital allowances or chargable gains.
    I have the BPP book so if you give me the page I will have a look for you.

  • Morris1871
    Morris1871 Registered Posts: 8 Regular contributor ⭐ 😼 ⭐
    Thanks alot draindoctor. That's a massive help, especially the part on tax relief. Could never manage to get my head around that until now.
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