WHAT IS TAX UMBRELLA?

Tax umbrella refers to the money that is sheltered from taxation because of the loss incurred in business in previous years. This amount is the same as that which was lost when the loss occurred. The period when it can apply usually goes up to 5 years. This issue if confusing to you can be handled by an company umbrella, which offers this service as one of their umbrella service. In order to understand this phenomenon better, here is an illustration. Say you run a company called ABC. In year one, you make a profit of one million. This is taxed regularly as in the normal way. In year two; however, you suffer some misfortune and incur a loss of six hundred thousand pounds, and since there are no profits you are not taxed. In year three, you recover form your loss and are able to make a profit of one million, three hundred thousand dollars. Because of the loss you made the previous year, you apply for six hundred thousand dollars to be exempted from tax. This therefore means that the amount to be taxed is the profit made in the third year minus the amount incurred as a loss in year two. So you take one million three hundred thousand, minus six hundred thousand. The taxable amount is seven hundred thousand. The six hundred thousand is what is known as a tax umbrella.