ACCA Advanced Taxation (ATX) Practice Exam

What must be retained by the owner to carry forward trading losses after the cessation of an unincorporated business?

1. Auditing permissions

2. All shares until year-end

3. A minimum of one share

4. Retention of loan agreements

The correct answer is: All shares until year-end

In the context of carrying forward trading losses after the cessation of an unincorporated business, it is essential for the owner to retain some form of continuing interest in the business for tax purposes. The requirement is that the owner must hold all shares until the year-end to allow the unutilized trading losses to be carried forward against future trading profits. This provision is designed to ensure that the losses remain available to offset against future income, fostering a fair taxation environment for individuals and businesses engaged in entrepreneurial activities. Retaining all shares demonstrates an ongoing commitment or connection to the business activity, which is a necessary condition for utilizing the trading losses for tax relief in subsequent years. Other options, such as retaining auditing permissions, having a minimum of one share, or retaining loan agreements, do not meet the specific conditions required by tax legislation related to the carrying forward of trading losses; they do not establish enough connection to the business to satisfy the regulatory requirements. This highlights that for tax relief purposes, maintaining a full investment interest, indicated by holding all shares until the tax year concludes, is the essential action to take for unincorporated businesses.