Normally a Company can carry back a loss against its previous year. The budget announced a temporary extension to allow losses to be carried back up to three years. This can trigger a refund of tax paid in these previous years.
In detail, Companies having accounting periods ending between April 2020 and 31 March 2022 can carry back any losses in these accounts against profits up to three years back (capped at £2m).
This also applies to sole traders and partnerships. Trading losses declared in their 2020/21 or 2021/22 tax refund can be offset against profits made in the previous 3 years.
As expected, offsets must be made against the most recent year first and must relate to the same trade.
Cont…
This extension provides a valuable lifeline for businesses affected by the economic downturn caused by the pandemic. By enabling companies to access tax refunds for previous profitable years, it injects much-needed liquidity into businesses. This measure helps maintain cash flow, supporting ongoing operations and potentially preserving jobs during challenging times.
For companies, the cap of £2 million ensures that substantial relief is available. It also maintains a level of control over the amount reclaimed. Sole traders and partnerships also benefit from this provision, allowing them to stabilize their businesses by reclaiming taxes paid on earlier profits.
To utilize this provision, companies and individuals need to ensure accurate and timely filing of their tax returns, reflecting the losses and adhering to the prescribed order of offsetting against the most recent year first. This temporary measure underscores the government’s commitment to supporting businesses and mitigating the economic impact of the pandemic. Companies and individuals should consult with their tax advisors to maximize the benefits of this opportunity. This will also ensure compliance with all relevant regulations.
