Offset tax loss on new business

by **windsor114** on Wed Sep 21, 2011 2:42 pm

Hi, I'm hoping someone wiser in the ways of uk tax than I can help me.

From 2009-2011 I was running a feature film production company, which unfortunately posted a 40k loss.

Now I am starting working with a new marketing agency, incorporating elements of filmmaking into the new business direction. I'm wondering if there's anything I can do to use the previous loss to offset against future tax liability if I continue to use this film ltd company, otherwise I'll wind it up, and start a new ltd company.

George

by **Incredulum** on Wed Sep 21, 2011 6:00 pm

It depends whether it is a new trade, or merely an extension of the previous trade.

Is this a complete change of direction, or a mere change in emphasis of something quite similar.

When did you stop making films?

by **towat** on Thu Sep 22, 2011 10:23 am

Look at the directors report section of your last Company accounts, there is a paragraph there beginning "the principal activity of the company was....."

If the current activity of the company can realistically be argued as being covered by that description, so that that description does not need to be changed in future accounts, then you should be able to bring forward the earlier loss.

If however the description was quite narrow and specific and does not encompass the current activites then HMRC would not allow the loss.

by **Incredulum** on Thu Sep 22, 2011 12:36 pm

Don't really agree, towat. What is written in the directors' report does not affect the facts of the case.

Generally HMRC do not argue that a company has multiple trades, indeed there is a presumption that a company has only one trade. http://www.hmrc.gov.uk/manuals/bimmanual/bim70535.htm

However, here is lots of reading for you.

http://www.hmrc.gov.uk/manuals/bimmanual/bim70500.htm

I'm afraid you will get as many answers as you ask tax professionals.

by **towat** on Thu Sep 22, 2011 2:07 pm

You are of course quite correct, the point I was trying to make was that if the principle activity of the company was sufficiently vague for instance "film production and all related marketing activities" the HMRC would have a hard time arguing that the trade had changed instead of merely developing as originally planned. More to the point I know from experience that if the principal activity on the Directors Report changes then HMRC seize on that fact to disallow any brought forward losses, likewise if the principal activity can legitimately stay the same then they are unlikely to raise a query.

I fear however that film making losses will come under particular scrutiny due to the various Tax Avoidance schemes in this sector in recent years.