What is an accrued loss?

Losses incurred in previous years are called accrued loss. It is important to note that profit before taxes and accrued loss are generally not equal.

How is the accrued loss incurred?

According to the Accounting Act (Act LXXXI of 1996 on Corporate Tax and Dividend Tax), the profit before taxes according to the Accounting Act has yet to be adjusted with various increasing and decreasing items. If the resulting tax base is negative, this amount can be used in subsequent years to determine the corporate tax base.

How can the accrued loss from previous years be used?

First, it is important to know that losses incurred in previous years can be used in the 5 tax years following their occurrence, in the order in which they arose. To do this, the company should keep an analytical record showing how much loss has been incurred in previous years and how much has been used over the years.

In addition to the time limit, an amount limit is also applied when using the loss adjustment, which can be set at 50% of the adjusted tax base. We illustrate this with an example:

• Profit before taxes for the current year: + HUF 23,450 
• Items increasing the tax base: HUF 5,800 
• Items reducing the tax base: HUF 5,250 
• Adjusted tax base: + HUF 24,000 
• Accrued loss of previous years (still usable): HUF 19,000 
• Maximum usable accrued loss: 24,000 * 50% = HUF 12,000
• The tax base that can be used after the maximum accrued loss: 24,000-12,000 = 12,000 HUF
• Corporate tax payable: 12,000 * 9% = HUF 1,080 

Thus, it should be recorded in the register kept analytically by the company that HUF 12,000 was used in the current year from the accrued loss of the previous years and thus another HUF 7,000 can be used in the following years (if the 5-year time limit has not yet expired).

If the company had not used the loss carry-forward, the amount of tax payable would have been as follows in the current year:

• Adjusted tax base: + HUF 24,000 
• Corporate tax payable: 24,000 * 9% = HUF 2,160 

The company can, of course, decide not to use the losses incurred in previous years in the current year, but it is worth taking care not to lose the accrued loss, i.e. not to run out of the 5-year time limit.