ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL This change is in taxpayers’ favour in principle and may benefit some in practice. But the numbers affected and the amounts involved are likely to be small Change 15: Trading losses: restrictions: determination of contribution to the firm: sections 104, 107, 110 and 113
This change streamlines the process of calculating an individual’s contribution to the firm by specifying that it is to be determined at the end of a basis period rather than the end of a tax year.
Section 117 of ICTA specifies that the restriction on the amount of sideways relief which may be given to an individual for a loss sustained in a trade must not exceed the amount of the contribution (to the trade) at the “appropriate time”. This time is defined (broadly) as the end of the tax year in which the loss is sustained or for which the loss is allowed.
The loss itself is of course calculated for the basis period for the tax year. And it is simpler for the contribution to be calculated on the same basis. Especially as the end of the basis period will correspond with the end of a period of account, so making it easier for the individual to determine the part of the contribution represented by (undrawn) profits. The end of a tax year may not so correspond, making it more difficult to determine profits, and perhaps requiring the individual to wait until the accounts for any overlapping period of account have been prepared.