Extension of the period for trading losses carry-back to get a refund

To support the UK economy to recover from the effects of the pandemic, businesses which have incurred trading losses in financial years 2020-21 and 2021-22 will have more flexibility to carry back the losses to three years.

Currently section 37 Corporation Tax Act 2010 allows a company incurring a trading loss in an accounting period to make a claim to offset the loss against total profits of the previous 12 months after first having set the losses against any profits of the accounting period in which the loss occurred.

Relief is available for both incorporated and unincorporated businesses. The amount of trading losses that can be carried back to the preceding year remains unlimited for companies. After carry-back to the preceding year, a maximum of £2m of unused losses will be available for carry-back against profits of the same trade to the earlier two years.

This £2m limit applies separately to the unused losses of each 12-month period within the duration of the extension.

Companies that are members of a corporate group will be able to obtain relief for up to £200,000 of losses in each of 2020-21 and 2021-22 without any group limitations.

The extra cash generated through corporation tax refund will help the small profit-making businesses (before the pandemic) that are struggling to open up their businesses.

You can see similar examples of loss relief here.

This article has been shared from ACCA In Practice, to whom copyright belongs.  Whitefield Tax are an ACCA Member Firm