Extended Loss Carry Back – help for businesses

In an effort to provide further aid for businesses struggling with the coronavirus pandemic, the government has extended the period in which trading losses can be carried back for tax relief purposes.

The Extended Loss Carry Back measure announced at Budget 2021 allows businesses to make claims to carry back losses for a further two years than current rules allow. This temporary extension applies for losses in accounting periods ending between 1 A‌pr‌il 2020 and 31 M‌ar‌c‌h 20‌‌‌22.

Relief 

This relief will be particularly useful for previously profitable companies in sectors that have been significantly affected by the coronavirus pandemic. These businesses will be able to utilise this extension in conjunction with other available government reliefs in order to help with cash flows.

All other current loss reliefs will remain available. For example, if a claim under the new relief is not possible because there are no trading profits in earlier years against which to set a loss, then any unrelieved loss will remain available to be claimed to carry forward and set against trading profits in future tax years.

The relief is capped at £2 million of unused losses per year. Groups with companies that have capacity to carry back losses in excess of a de minimis of £200,000 will be required to apportion the £2 million cap.

For groups of companies, the maximum cashflow benefit is £760,000 (£2 million at 19 percent for two years), so claiming the extended relief is likely to be a worthwhile exercise for many.

Claims

Claims over £200,000 must be made in a company tax return (CT600). Box 45 (claim or relief affecting an earlier period) on the return should be completed with the details of the carry back claims included in the computations that accompany the return and the accounts.

There’s no need to submit amended returns for any earlier periods the extended relief applies to, as claims will be treated as amendments to those returns.

The proposed change is temporary and will only apply to trade losses for the tax years of 2020-2021 and 2021-2022. Trade losses in 2022-2023 will be subject to the normal one year carry back rule.

Further information

Claims below the £200,000 limit can be made outside of the company tax return.  Details of how to make these claims and further information about the Extended Loss Carry Back measure can be found on the government’s website.

For further advice or assistance regarding the UK government’s available business relief packages, please do not hesitate to contact Briars.