Trading losses – carry back or forward?
In the March 2021 Budget, it was announced that the normal one-year carry back for trading losses would be extended to three years. That means that many businesses that have made losses during the COVID-19 pandemic may be able to obtain a repayment of tax paid in that earlier three-year period. This enhanced carry back applies to unincorporated businesses as well as limited companies and will provide a much-needed tax refund.
However, with the corporation tax rate increasing to 25% from 1 April 2023 for profits over £250,000 it may be more beneficial to carry the loss forward. Note that the marginal rate is 26.5% where profits are between £50,000 and £250,000 a year. So, there is a trade-off between a tax refund now and a possible bigger tax saving in the future.
For the enhanced carry back the company’s loss-making accounting period must end between 1 April 2020 and 31 March 2022. For unincorporated businesses, the trading loss must be incurred in 2020/21 or 2021/22.
For corporation tax purposes, it is no longer necessary to finalise the year-end company accounts and file the CT600 corporation tax return to claim loss relief where the loss is no more than £200,000. HMRC will however require evidence of the loss to process the claim such as management accounts for the period.
Do you need further guidance on trading losses?
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