Tax losses - CH3(page 10)

[kiki]

Hi,

Can someone please help me to understand or perhaps give me an example for the following content from textbook

three common ways in which companies may relieve trading losses, losses can be :
- carried back and set against the previous year's profit
- carried forward and set against future trading profit
- surrendered to other companies in the same regional tax group and offset by other companies against their taxable profits, but there may be restriction on the ability of a branch within a group to surrender its losses.

thank you

 

[CapitalActuary]

Carry back:

Company makes £100 last year, so owes £20 tax (assuming 20% rate). If it loses £10 the next year it might carry back the loss, reducing its taxable profit for the previous year to £90, and reducing its tax liability for the previous year to £18 from £20. If they already paid the previous year’s tax bill, the situation is now that they’re owed £2 of tax back.

Carry forward:

Company loses £100 and next year makes £250. They carry forward the £100 loss to reduce their taxable profit for the most recent year to £150, so reducing their tax liability.

Group relief:

“In the most straightforward case a company with profits of £1000 wholly owns a subsidiary which has losses of £100. In economic terms there is one profit-making unit (the group) and it has profits of £900. Group relief is designed to ensure that the group pays tax on £900.”

Last example copy-pasted from https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm80105