A temporary change to the rules on carrying back trade losses was announced in this year’s Budget. Unlocking tax relief could mean a considerable cash flow plus for businesses hit by the pandemic.
This becomes three years rather than the usual one year, and applies to both incorporated and unincorporated businesses. For companies: this covers losses arising in accounting periods ending between 1 April 2020 and 31 March 2022. For unincorporated businesses: it affects the tax years 2020/21 and 2021/22.
Updated HMRC guidance outlines the claims procedure for companies and we would be happy to guide you through the process, if needed.
Learn more: The losing game: how to use business losses
Carrying back losses – general guidance for companies
- Claims for a loss can be made once the extent of the loss has been established.
- The claim must be for an amount that is quantified at the time of claiming. Note: this is usually done in the Corporation Tax (CT) return.
- We will not need to submit amended returns for earlier periods to which the relief applies. The claim will be treated as an amendment, where relevant.
- Claims to the extended loss relief must be made within two years of the end of the accounting period in which the loss being carried back arises.
How to claim a loss
Where your loss is below the £200,000 de minimis limit, the claim will be made by letter to your usual HMRC contact address for Corporation Tax, supplying relevant details. This can be done immediately after the end of the accounting period in which the loss occurs. HMRC will require supporting information in order to verify the accuracy of the claim. Therefore, the claim must be appropriately quantified, and substantiated by evidence such as draft accounts or management accounts.
Claims above the £200,000 de minimis limit will be made in the CT return. Details of the carryback claim will be included in the computations accompanying your accounts and CT return.
Now that the Finance Bill has received Royal Assent, HMRC will be starting to accept claims, both for companies and unincorporated businesses.