During the March 2021 Budget earlier this year, in order to help struggling businesses boost their cashflow, the Treasury temporarily changed the rules on carrying back trade losses. These new rules extend over the period which losses can be carried back for tax relief against profits of earlier years.
Normally, you’d be able to carry back the trading loss to set against profits incurred one year leading up to the period in which the loss was suffered, but with the new temporary changes in place, this will now be three years and will apply to incorporated an unincorporated businesses.
The cap on this is losses of up to £2 million and this will cover losses in accounting periods ending between 1 April 2020 and 31 March 2022 for companies. For unincorporated businesses, it affects the tax years 2020/21 and 2021/22. The potential cash refund can total up to £760,000 if you end up utilising the full £2 million of trading losses during the three profitable years.
For businesses who have been particularly affected by the pandemic, such as businesses in the hospitality and travel sectors, this tax relief will be particularly beneficial.
For more information on working out and claiming relief from Corporation Tax trading losses, visit the dedicated UK Government website page.
If you need help working out your profits and losses, get in touch with us at [email protected].