When shareholders choose to become a look-through company (LTC) they agree to use the LTC rules. This includes becoming liable for any income tax payable on the company’s profit.
If a company is newly incorporated or first starts to trade, you need to send us an election form by the date the company’s first return is due, including any extension of time. The election form can be completed after the return is filed, if it is received before the return’s due date. It will then apply from the start of the first income year.
If a company has been in existence and trading for some time, you need to send us the election form before the start of the income year it applies for.
When a company becomes an LTC, any loss balance from previous years is cancelled and cannot be carried forward. These losses cannot be used by the LTC and are no longer available to the company.
When an existing company becomes an LTC there is a calculation of income for each owner. The company’s reserves may be distributed or drawn down without the owners being subject to tax on distribution. This treatment is not intended to apply to previously accumulated company reserves. Each owner declares their proportion of this income in their own income tax return.
To find out more about income for the first year of an LTC check out our guide.
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