Trade loss carry back period temporarily extended from one to three years for losses of up to £2 million (adjusted for groups).
The Chancellor has announced a temporary extension to the carry back period from one to three years for trade losses of up to £2 million (adjusted for groups of companies) for two years. This measure will provide a welcome cashflow benefit to businesses, both incorporated and unincorporated, who have suffered increased trading losses as a result of the COVID-19 outbreak by providing extended relief for those losses, thereby generating repayments of tax paid for two additional years. Separately, a number of amendments are being made to the rules which restrict relief for losses carried forward to reduce administrative burdens for business and help ensure that the legislation works as intended.
Trading losses made by companies in accounting periods ending between 1 April 2020 and 31 March 2022 and by unincorporated businesses in tax years 2020/21 and 2021/22 can be carried back for three years rather than one, with losses being carried back against later years first.
The relief is capped at £2 million of unused losses per year. Groups with companies that have capacity to carry back losses in excess of a de minimis of £200,000 will be required to apportion the £2 million cap.
For groups of companies the maximum cashflow benefit is £760,000 (£2 million at 19 percent for two years) so claiming the extended relief is likely to be a worthwhile exercise for many.
Separately, a number of amendments are being made to the corporation tax rules which restrict relief for losses carried forward to reduce administrative burdens for business and help ensure that the legislation works as intended. Details can be found in HMRC’s policy paper. Improvements have been made in a number of areas including:
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