Tx notes fa22 Final

Calculate the taxable income for all years after claiming opening years loss relief. 
Assume the personal allowance for 2022/23 applies throughout. 
6.
 
Terminal loss relief 
(a)
The terminal loss is the loss of the final 12 months of trading computed in 2 parts dividing the 
last 12 months of trading between the final and penultimate tax years, calculated as follows:
i.
The actual trade loss for the tax year of cessation (from 6 April to the date of cessation) 
plus any overlap relief arising from opening years.
ii.
The actual trade loss for the period 12 months before cessation until the end of the 
penultimate tax year.
If the result in ii) is a profit, it is treated as zero for purposes of the terminal loss computation.
The terminal loss (as computed) is then set against the trading profit for the tax year of 
cessation (if any - note this is usually a nil assessment given the loss arising) and then against 
the trading profits of the previous three tax years on a LIFO basis.
£
Year ended 30 June 2021
Loss
(12,000)
Year ended 30 June 2022
Profit
2,500
£
2020/21
5,868
2019/20
11,050
2018/19
15,800

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Example 6 
David had the following trading results before ceasing to trade on 31 May 2023:
Show the loss available for relief under terminal loss relief, assuming overlap profits on 
commencement were £5000 and state how this loss would then be relieved. 
Exam technique 
The following procedure should be adopted when answering questions:
(1) Determine the tax adjusted profits and losses after capital allowances for each accounting period.
(2) Determine when losses arise and therefore when loss relief is available (i.e. in which tax years).
(3) Set up a pro forma income tax computation for each tax year side by side and leave spaces for
the loss relief to be inserted later.
(4) Set up a loss memo working for each loss to show how it is utilised.
(5) If there is more than one loss, consider them in chronological order.
(6) Set o
ff
losses according to the requirements of the question.