Corporation Tax - Loss Carry Back

[PhilWarren65]

Hopefully an easy question.

Are there restrictions on types of expenses that result in a company loss for CT refund?

Scenario: Limited company / single employee
22/23 - £120k income - £20k expenses including £12k salary - £100k profit - £19k Corp Tax
23/24 - £8k income - £14k expenses including £12k salary - £6k loss

Am I able to claim £1140 corporation tax refund from the previous year or are there restrictions that limit salary to a maximum of income? My accountant is saying I cannot reclaim CT on salary in excess of current year income but I cannot find any reference to this rule.

Thanks in advance

[wamstax]

Your accountant may be thinking that given that your company only earned £8K it suggests that you have claimed a salary in excess of what is reasonable based on the company turnover. That is if your efforts only reaped £8K in tunrover then that would be the maximum value of your efforts (and therefore the reward by way of remuneration). However it is always the case that your efforts as an employee may lead to more or less turnover and turnover would not necessarily be the proper basis to measure what amount of remuneration was "wholly and exclusively" expended for the purposes of the company's business. There would be other considerations that could come into play, for example, Was there any particular reason for the lack of turnover compared to the previous year? Were your efforts and time spent on the company's business materially different in the latest year compared to the earlier year? Were your efforts in the year expended wholly and exclusively and the company will not reap the turnover/profits in the next year etc etc.

Of course in the latter event there may well be an argument that your worked performed should be recognised as either (possibly) work in progress etc for any work not completed/earned at the accounting date.

You might suggest to your accountant - assuming that none of the above considerations apply to explain the rationale to the comparatively increased salary - that irrespective of the results in turnover terms you spent as much time in the last year and applied yourself equally as in the past year and whatever consideration is applied you are still entitled to a salary of not less than £12K and it was incurred wholly and exclusively by the company for the purposes of its trade/business.
However Iwould just say that your accountant is a lot better placed than me to judge the wholly and exclusively value of your efforts given his knowledge of your company and business.

[Integraoutsourcing]

When it comes to claiming a corp tax refund for a company loss, there are certain restrictions that need to be considered. In your scenario of a limited company with a single employee, the company had an income of £120k in the 2022-23 financial year and incurred £20k in expenses, which included a £12k salary. This resulted in a profit of £100k and a corp tax of £19k.

However, in the following financial year (2023-24), the company had an income of only £8k and expenses of £14k, including the same £12k salary, resulting in a loss of £6k.

Typically, you cannot claim a corporation tax refund on expenses that exceed your current year's income. However, specific regulations vary by jurisdiction. While salary expenses are generally deductible, they may not be eligible for a refund if they surpass current year income. Ensure your accountant thoroughly reviews applicable regulations to maximise potential refunds while staying compliant.

[johnsamir]

There are no specific restrictions on claiming Corporation Tax refunds based on previous year's losses.