11 March 2021
Loss Carry Back – Budget 2021
As businesses have felt the strain on their income and profitability following the restrictions imposed during the pandemic, the government recently announced in their Spring 21 budget that businesses can improve their cash flow by utilising recent losses made. The new rules will allow businesses to temporarily carry back trading losses to offset against profits made in the previous 3 years, as opposed to the current ability to carry back only 1 year. This extension will apply to losses incurred for the following businesses:
- For Limited companies, for accounting periods ending between 1 April 2020 – 31 March 2022, capped at £2m of losses per year between these dates
- For Sole traders and Partnerships, for accounting periods ending in the 2020/21 and 2021/22 tax years, capped at £2m of losses per year between these dates
If losses are made within these periods, then these losses can help businesses financially by carrying them back to offset against previous profits made – which would then trigger repayments of the tax previously paid on these profits.
For Example
Your company makes losses of £50,000 in the year ended March 2021, but made profits of £30,000 in 2020, £10,000 in 2019 and £40,000 in 2018. The £50,000 will be carried back against 2020 and 2019’s profits and £10,000 of 2018’s profit, which would end up providing a repayment of corporation tax of £9,500. Considering the new ‘super-deduction’ relief for limited companies these new rules may provide companies with tax losses to carry back against previous profits made. You can read our blog on the Super Deduction here. For sole traders and partners in partnerships, the loss will be able to reduce their general income in the preceding 3 tax years.
Haines Watts
Our tax team is here to help. If you have losses to carry back and would like to discuss this with one of our team or have questions or concerns regarding your tax or tax planning please get in touch on the number below. To ensure you and your businesses takes advantage of any tax saving opportunities please take a look at our over view tax planning guide here.
