Last week we covered the new rules for carrying back trading losses for income tax. A similar extended carry back period also applies for corporate trading losses arising in accounting periods that end between 1 April 2020 and 31 March 2022.
Clients may have already submitted company accounts and tax computations for an accounting that qualifies, showing a significant loss. They may now be able to submit a further loss claim to generate an additional tax repayment.
Under the existing rules a corporate trading loss can only be set against profits and gains of the same year or carried back against profits of accounting periods ending in the previous 12 months. Any losses not used in that fashion would have to be carried forward to set against profits of the same trade.
Provisions in Finance Bill 2021, Schedule 2, allow the trading loss to be carried back to set against total profits of accounting periods ending in the previous three years, using losses against profits of the later periods first.
There is no cap on the amount of loss that can be carried back one year. However, there are two £2 million caps (one for each financial year in which the loss is generated) for the losses carried back to the two earliest years of the three.
Claims for losses can be submitted as soon as the accounting period has ended, as long as the loss can be quantified appropriately and supported with draft accounts or management accounts. The company does not have to finalise its audited accounts for the year before making a claim, or even submit its corporation tax return for the period.
HMRC will accept loss claims for up to £200,000 for this extended carry back period outside of the corporation tax return. Larger loss claims must be made on the corporation tax return.
Remember any covid business support grants the company has received form part of its trading income for the accounting period, so will reduce the trading loss.
Written by the Tax Advice Network