ACCA Advanced Taxation (ATX) Practice Exam

Is it possible to claim for carry back of management expenses in corporation tax?

1. Yes, always

2. No, it is not allowed

3. Only for small companies

4. Yes, if there are losses in subsequent years

The correct answer is: No, it is not allowed

In the context of corporation tax, specifically regarding management expenses, it is essential to understand how losses and the timing of expenses can be treated under tax regulations. Generally, management expenses can be deducted from a company’s income to arrive at taxable profit. However, the treatment of these expenses in terms of losses and their carry back to prior years is governed by strict rules. The option that states it is not allowed to claim for carry back of management expenses reflects the standard principle in tax law that expenses incurred in one accounting period cannot be offset or carried back to be applied against profits from a previous period. This means that if a company incurs management expenses and subsequently makes a loss, those expenses cannot be reclaimed against profits from previous years to receive a tax refund. Instead, losses can typically only be carried forward to offset against future profits. This is significant because it clarifies the limitations that companies face regarding how they manage their expenses and losses. Therefore, the understanding that carry-back options for management expenses are not permitted is consistent with the principles laid out in tax regulations governing corporation tax.