The formation and the use of accrued loss
Írta: Tímea Kocsis
8 Sep, 2020
Uncategorized

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.

További bejegyzések

Rules of issuing invoices in Hungary

Rules of issuing invoices in Hungary

Invoices in Hungary Invoices in Hungary must comply with some rules that you must be aware in case you wish to keep your Hungarian company compliant. If you are planning to start a business in Hungary, or you already have formed a company and started the activity you...

Simplified voluntary liquidation IN HUNGARY

Simplified voluntary liquidation IN HUNGARY

In the life of a company, it may happen that the owners decide to terminate the company, either for internal reasons or for external reasons. If the decision is to terminate the company without a legal successor and the company is not insolvent, there is room for...

Tax changes in Hungary from 2022

Tax changes in Hungary from 2022

Tax changes in Hungary from 2022 As of 1st January 2022, there are some tax changes that apply to employee and employer. The amount of the minimum wage and the guaranteed minimum wage will be raised from 1 January 2022. The gross...

Taxation of sales of products – VAT

Taxation of sales of products – VAT

There are different rules in the VAT Act for the provision of services and separately for the sales of products. If you do business in Hungary, you should be aware of this. What are product sales? Product sales are when we acquire a tangible product, good,...

Start a business in Hungary

Start a business in Hungary

To start a business in Hungary, you need to look at a number of aspects in order to choose the most appropriate form of company, the most optimal form of taxation, and the best location. In addition, the type of the service to be provided by the prospective company...

Personal income tax in Hungary

Personal income tax in Hungary

Do I need to make a personal income tax return and when? If you are resident in Hungary and you had income in Hungary during the year, then yes, you have to submit a tax return. The submission deadline: 20th May of next year. What kind of incomes are taxable in...

Tax changes in Hungary from 2021

Tax changes in Hungary from 2021

As of 1 January, 2021, there are only a few tax changes that apply to employees, surprisingly compared to previous years. From 1 January 2021, the gross minimum wage was HUF 161,000 and the gross guaranteed minimum wage was HUF 210,600. According to decision of the...