Extended Loss Carry back For Businesses
The Finance Bill 2021 included a plan for the Government to introduce new legislation. The new legislation provides a temporary extension to the loss carry back rules for trading losses of both corporate and unincorporated businesses.
In brief, the legislation enables companies, unincorporated business, including traders along with individuals associated within a professional or vocational entity, and also partners of an unincorporated partnership.
- Company Taxation – Summary
- The £2,000,000 Cap
- De Minimis Limit
- Commencement and Duration
- Unincorporated Businesses
- Making a Claim – Companies
- Making a Claim – Unincorporated Businesses
- Further Guidance on Extended Loss Carry back For Businesses
The current rules allow trading losses to be carried back one year without restriction.
For accounting periods ending between 1 April 2020 and 31 March 2022, this will be extended to three years. With losses required to be set against profits of most recent years first before carry back to earlier years.
The £2,000,000 Cap
There are no changes proposed to the current one-year unlimited carry back of trade losses. However, for the extended relief, the amount of loss that can be carried back to the earlier 2 years of the extended period is to be capped for each of those 2 years.
This is a cap of £2,000,000 of losses for all relevant accounting periods ending in the period 1 April 2020 to 31 March 2021 (financial year 2020).
A separate cap of £2,000,000 applies for all relevant accounting periods ending in the period 1 April 2021 to 31 March 2022 (financial year 2021).
Groups will be subject to a group cap of £2,000,000 for each relevant period.
De Minimis Limit
Extended loss carry back claims will be required to be made in a return. However, claims below a de Minimis limit of £200,000 may be made outside a return.
This means that any stand-alone or group company with losses capable of providing relief up to a maximum of £200,000 may make a claim in respect of a relevant accounting period without having to wait to submit its company tax return.
Any stand-alone company or group company wishing to make a claim exceeding £200,000 must claim on a company tax return.
Groups are subject to a group cap of £2,000,000 where any company is able to make a claim that exceeds the de Minimis. Any de Minimis claims for the relevant period will be taken into account in determining the total amount available for any claims in excess of the de Minimis.
Commencement and Duration
The change will apply to losses arising in accounting periods ending between 1 April 2020 and 31 March 2022.
The current rules allow a trade loss for a tax year to be set against general income of the loss-making year and/or the previous year.
There is a limit on the amount of certain income tax reliefs, including trade loss relief against general income, that can be used to reduce total taxable income – this is the higher of £50,000 or 25% of adjusted total income.
No change is proposed to these rules.
Similar caps, as mentioned above, will also be in place for unincorporated businesses.
The 3 year extension will build on the existing trade loss relief against general income in section 64 of ITA07. It will apply where a claim has been made under section 64 of ITA07 to set a trade loss for 2020 to 2021 or 2021 to 2022 against general income of the current year, the previous year, or both, and relief for the loss cannot be fully given under that claim.
All other current loss reliefs will remain available.
The proposed change is temporary and will only apply to trade losses for tax year 2020/2021 and 2021/2022. Trade losses in 2022 to 2023 will be subject to the normal one year carry back rule.
Making a Claim – Companies
For Companies the claim can be made on the corporation tax return by completing Box 45. Additional details must be provided in the computations. Claims to the extended loss relief must be made within 2 years of the end of the accounting period in which the loss being carried back arises.
Submission of amended corporation tax returns will not be permitted for the extended loss carry back claims. This is because in most cases the time limit for amendments will have lapsed.
HMRC have yet to release the full details for making a ‘de Minimis’ claim. However we do know that additional evidence to support a claim will be required. Further details will be made available in due course.
Making a Claim – Unincorporated Businesses
A claim to loss relief will normally be made in a person’s tax return. However, where a claim will affect more than one year a stand-alone claim may be made outside of a return. The claim must specify the name of the business, the period for which the loss is made, the amount of the loss, and how the loss is to be used.
A stand-alone claim may be made as soon as the basis period for which the loss is made has ended and the loss has been calculated.
There are time limits therefore it is important to ensure all claims are made as soon as possible.
- for a trade loss in tax year 2020/2021 will be 31 January 2023.
- for a trade loss in tax year 2021/2022 will be 31 January 2024.
Further Guidance on Extended Loss Carry back For Businesses
To read the full article from HMRC, including examples of how to utilise the losses incurred in your current trading period, visit HMRC for further details.
How Onyx Accountants can help you?
The Onyx Tax Team are on hand to help! They are ready to prepare and complete your current year end accounts and review your loss situation.
We can help to identify the most tax efficient way to utilise all business trade losses.
If your business is due a tax refund due to the extended loss carry back claim then we can help. Ensuring you receive your tax refund as soon as possible.
By using Onyx Accountants and Business Advisors to complete your accounts, you can focus on your business and leave the hard work to us!
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