Income tax and NIC liabilities — ACCA Practice Question 25

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).

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?

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA TX — Taxation Practice Exam 2

More questions from this exam

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?

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA TX — Taxation Practice Exam 2

More questions from this exam

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?