Losing Money With Grace And Tax Efficiency
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27 March 2013
are looking closely at income tax loss claims and
this is emphasised by the capping of income tax losses from 6 April
2013 to £50,000
per annum or 25% of an individual’s total income (whichever is the
There are other areas of scrutiny of the validity of a loss claim by
“10 hour rule”
addition to income tax losses on which a taxpayer
may wish to obtain tax relief, there are capital losses, for example
traders and shares. HMRC are also reviewing such claims. Where an
lends money to a trade which subsequently becomes irrecoverable,
in full, relief may be found in TCGA 1992, s 253. “Trade” is defined to
a profession or vocation, but explicitly excludes “a trade which
consists of or
includes the lending of money” (s 253(1)(a)).
are not defined in the legislation and may be in
the form of cash, bank overdrafts, a bank loan (to repay a loan taken
lend to a trader) or simply a credit balance in a director’s loan
of the most basic forms of loan which taxpayers
want to claim tax relief on are the Director’s Loan Account (DLA). HMRC
prepared to allow tax relief without conditions being met.
Loan Account (DLA) – the conditions
there are reasons for an inspector to believe
that there are still reasonable prospects of the loan being able to be
in future, tax relief cannot be obtained.
practical tax tip is do not rush the claim. What
do the business plans and director’s minutes show? What are the
the directors? Can it be proved the loan cannot be repaid?
the borrower continues to trade (subject to
further examination of precise circumstances), even at a loss. This, in
view, is a sign of potential recoverability (CG65950) of the loan and
relief cannot be obtained.
the trade ceased or is it continuing? What will
happen with the trade? So often directors are not prepared to “throw in
the lender makes further loans to the business following
the making of a claim for relief (CG65957).
example, when a claim for the DLA loss has been
made and the director still pumps money into the business the CGT loss
will be denied.
the borrower’s trade was already in such
difficulty when money was lent that the loan may be regarded as
from the outset (CG65951).
money into an owner managed business via a DLA
when the business is in real trouble will mean that the DLA cannot
CGT loss relief.
the loan is converted into shares or securities,
even though these may themselves be worthless (CG65934). Shares or
acquired under these circumstances are also unlikely to obtain relief
“negligible value claim”.
an individual has invested in shares or securities
in a company, be it quoted or unquoted, and their value has become
there may be relief under TCGA 1992, s 24 under a “negligible loss”
claim for CGT. Relief under this section gives rise to an allowable
loss in the tax year in which the claim is made and admitted by
tax loss relief
are not going to allow the tax relief without
question and key will be evidence and documentation. Original business
show the business would and could make money and how this would be
is possible for businesses to be “blown off course”
(Walls v Livesey) in terms of
as there was a particular circumstance that caused the problem which
argument for the income tax loss relief.
key fact to demonstrate to HMRC is that the
business was structured to make a
profit, ie that sale proceeds cannot just exceed production costs but
cover overheads and that the income tax loss claim is therefore
practical tax tips
money is a fact of business life and there are
tax reliefs to be claimed in respect thereof. However, whether loss is
capital or income nature, it is important to ensure maximum tax relief
claimed and there is evidence to support the claim.
About the Author
Supplied by Julie
F.C.A. Butler & Co, Bennett House, The Dean, Alresford, Hampshire,
Tel: 01962 735544. Email; firstname.lastname@example.org,
the author of Tax Planning for Farm and Land Diversification (Bloomsbury Professional), Equine
ISBN: 0406966540, and Stanley: Taxation
of Farmers and Landowners (LexisNexis).
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Article Published/Sorted/Amended on Scopulus 2013-11-25 09:15:25 in Tax Articles