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Income tax and national insurance contributionsSection BSyllabus BLoss Relief
This question is part of a case study — click to read the full scenario(Case 26)

SCENARIO: Apex Consulting LLP is a management consulting firm. The partnership prepares accounts to 31 December each year. On 1 July 2023, a new partner, Beatrice, joined the partnership. Her share of the partnership profits for the year ended 31 December 2023 was £48,000. Prior to joining, Beatrice incurred £2,000 of training costs relevant to her new role. The partnership is considering changing its accounting date to 31 March.

QUESTION: What is Beatrice's basis period for her first tax year (2023/24)?

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ACCA · Question 29 · Income tax and national insurance contributions

SCENARIO: Apex Consulting LLP is a management consulting firm. The partnership prepares accounts to 31 December each year. On 1 July 2023, a new partner, Beatrice, joined the partnership. Her share of the partnership profits for the year ended 31 December 2023 was £48,000. Prior to joining, Beatrice incurred £2,000 of training costs relevant to her new role. The partnership is considering changing its accounting date to 31 March.

QUESTION: If Beatrice had made a trading loss in her first year, against what income could she offset this loss under early trade losses relief?

Answer options:

A.

General income of the current year only

B.

General income of the 3 preceding tax years, on a LIFO basis

C.

General income of the 3 preceding tax years, on a FIFO basis

D.

Future trading profits only

How to approach this question

Recall the rules for early trade losses (s.72 ITA 2007). Losses in the first 4 years of trade can be carried back 3 years against general income, earliest year first (FIFO).

Full Answer

C.General income of the 3 preceding tax years, on a FIFO basis✓ Correct
Under early trade losses relief, an individual who makes a loss in any of the first four tax years of a trade can carry that loss back against general income of the three preceding tax years. The loss must be applied to the earliest year first (FIFO basis).

Common mistakes

Selecting LIFO (Last-In, First-Out) instead of FIFO.
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