Taxation

There are different ways in which trading losses of sole traders and trading partners can be relieved. Some loss relief options give a

higher rate of relief by carrying losses forward, but it may be important to some taxpayers to claim relief now rather than later due

to cash flow implications.

In order to give proper advice and recommendations on a particular course of action it is important to understand the key features of

the different loss relief options available based on Income Tax Act 2007(ITA 2007) and Taxation of Capital Gains Act 1992(TCGA1992).

This could help to ensure the optimum use of trading losses.

You are required:

Part A) (There is a word limit of 800)

1- Critically evaluate the different loss relief options available for sole trader and business partners based on Income Tax Act 2007

(ITA2007) and Taxation of Capital Gains Act 1992 (TCGA1992).

2- Critically evaluate the recent restriction applied on relief for trading losses based on Finance Act 2013.
Part B)

Assume that today’s date is 1 December 2015.

David is 35 years old and married to Patricia who is 32 years old .The couple have one child who is six years old.

David has been employed since 2000 earning £3,750 per month (Monthly PAYE deducted £616) .He will have no other income in the tax year

2015/16.From 6 April 2016 he will have a source of property business income of £45,000 per year.
David intends to cease his current employment on 31 December 2015, and decided to form a partnership with his wife, Patricia, sharing

profit and losses equally, and to adopt a 31 March year end for accounting purposes.
David is anticipating a loss of £40,000 in the first three month period to 31 March 2016, but profits of £62,600 per annum are still

anticipated for future years.

Required:
Using David anticipated figures, identify the loss reliefs available to David and explain which of the available reliefs would be most

beneficial for him to claim.

Support your answer with calculations of the income tax (IT) saving achieved in each case.

Assume that the tax rates and allowances for 2015/16 apply throughout this question.

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