The net realisable value is the expected sale price of the relevant stock in the condition in which it is expected to be sold in the trader’s normal selling market. From that value are deducted the estimated further costs which will have to be incurred to get the stock into its normal sale condition to arrive at the net realisable value.
A realistic revaluation of the stock could be enough to create a tax loss which could then in turn be used to create a much needed tax refund by either setting off the loss against income elsewhere or carrying the loss backwards against profits achieved in better times. If it does not create a tax loss then a reduction in profit is always welcome when calculating your tax liability!
Carrying Back Losses
The government has now extended the tax provisions for carrying back tax losses for established businesses. Usually an established business can carry forward losses, set losses against income in the same year or carry back the losses into the previous tax year. Any hope of carrying back losses beyond one year were only possible with new businesses or businesses which were terminating under the opening years and terminal loss relief rules.
This year’s budget has extended the general carry back rules by allowing businesses to carry back losses by up to three years against later years first. The extension only applies to losses made in the 2008/09 and 2009/10 tax years for unincorporated businesses and for companies who make trading losses in accounting periods between 24 November 2008 and 23 November 2010.
Of course there are restrictions. The normal one year carry back remains unlimited in the amount of loss that you can carry back, however, the carry back into the further two years is limited to £50,000. Both 2008/09 and 2009/10 will have a £50,000 limit each rather than £50,000 to be shared by both loss making years making losses worth up to £100,000 made between 2008/09 and 2009/10 available against profits made as far back as 2005/06.
For new and terminating businesses there are special rules for opening years and closing years of business that may be more favourable than the government’s new budget rules. Which loss relief rules to use depends on when your income was good and tax was paid. Carefully planned loss claims could help you with a much needed tax refund in these unfortunate times!
Paying Your Taxes
Under the Business Payment Support Service at HMRC you can enter into a payment plan to help pay your income tax, PAYE, corporation tax, VAT and National Insurance. All you need to do is call 0845 302 1435 and you could be surprised by how helpful the tax office actually are.
Ian Wright
