Loss carry back for companies

  • 14th June 2021

You may have seen in the Budget in March 2021 that the Government announced a temporary, additional loss carry back facility for companies making losses during the accounting periods ending between 1 April 2020 and 31 March 2022. This is in addition to the normal rules which applies to corporate losses.

How do the changes in the rules affect me?

If your company made profits in the pre-covid era then the temporary extension to the carry back rules should give tax relief against those profits for the losses made during the pandemic.

What are the details of the loss carry back?

The new rules apply to any trading loss incurred by a company in an accounting period that ends in the period beginning with 1 April 2020 and ending with 31 March 2022. If your company has made a loss for those accounting periods then you can carry back the loss for three years instead of one year.

For single companies, a 2020 claim may be made by a company for an accounting period that ends in the period beginning with 1 April 2020 and ending with 31 March 2021 if the total amount of relief given is under £2m. A 2021 claim may be similarly made for an accounting period that ends in the period beginning with 1 April 2021 and ending with 31 March 2022.

In simple terms, this means that a trading loss can be carried back for up to three years and set against total profits in those earlier years, in chronological order, provided that that trade was carried on in those earlier years. There are similar rules for groups of companies.

HMRC example of a stand-alone company

Company A has current year (CY) trading losses of £3,300,000 and profits of previous periods as follows:

CY-1 - £1,100,000

CY-2 - £1,750,000

CY-3 - £1,250,000

Current rules which allow £1,100,000 of CY trading loss to be carried back to CY-1 remain unaffected and therefore uncapped.

The changes would allow Company A to carry back £1,750,000 (limited to the profits of the period) of CY trading loss to CY-2 and £250,000 (limited to the unused amount of £2m losses available for carry back) of loss to CY-3. These claims exceed the de minimis of £200,000 (see below) and must therefore be made in a corporation tax self assessment return.

The remaining £200,000 of CY trade loss will be carried forward under current rules.

How and when is relief for the losses claimed?

A 2020 claim can be made after 31 March 2021, with similar rules applying for 2021 claims i.e. 31 March 2022. Claims must be made in the company tax return for the accounting period in which the loss in respect of which the claim is made is incurred.

However, in specific circumstances, where the total amount of relief given as a result of the claim is under £200,000 an early claim can be made, meaning that relief (and possibly repayments) can be made that much earlier. The rules apply as soon as the accounting period in which the loss occurs has ended providing it can be quantified appropriately, so claims will require sufficient information and evidence, such as draft accounts or management accounts, to enable their validity and accuracy to be verified.

Conclusion

If your company has incurred losses in recent times, it is important to determine the amount of the loss as soon as possible so that we can decide how this can best be claimed and obtain tax relief at the earliest opportunity. Please get in touch with us so that we can help you ensure the best use any losses for tax purposes.

All data and figures referred to in our news section are correct at the date of publishing and should not be relied upon as still current.