NEW ENHANCED LOSS RELIEF RULES MAY RESULT IN EXTRA TAX REFUNDS

Derek Grant

NEW ENHANCED LOSS RELIEF RULES MAY RESULT IN EXTRA TAX REFUNDS


The March budget announced that the standard one-year carryback for trading losses would be extended to three years. This means that many businesses that have made losses during the COVID-19 pandemic may be able to obtain a repayment of tax paid in those three years. This enhanced carryback applies to unincorporated businesses as well as limited companies, and the details are set out in the latest Finance Bill.

For corporation tax purposes, the loss-making accounting period must end between the 1st of April 2020 and the 31st of March 2022 to qualify for the three year carry back. For unincorporated businesses, the trading loss must be incurred in 2020/21 or 2021/22.

For example, if Albion Ltd incurred trading losses of £200,000 in the year ended 31st of December 2020, having made profits of £50,000 in the year ended 31st of December 2019, it would usually only be possible to relieve £50,000 of the losses.

The new temporary carry back rules would permit losses to be set against trading profits made in the years ended 31st of December 2018 and then 31st of December 2017. If profits in those years were £150,000 or more, the company would be entitled to a £38,000 corporation tax refund (19% of £200,000).