UK and International Tax news
Corporate Loss Relief Planning
Wednesday 20th April 2022
Changes to the rules for loss carry back as announced in the March 2021 Budget should be considered against the proposed increase in the corporation tax rate to 25% from April 2023.
Companies can normally set their trading losses against profits of the current or the previous accounting period, or else carry them forward against future profits.
The Chancellor announced in the March 2021 Budget an extension to the period which companies can carry back losses to offset against taxable profits of earlier years and claim a refund of tax paid on those profits. Trading losses arising in accounting periods ending between 1 April 2020 and 31 March 2022 may be carried back three years, with losses being carried back against later years first. Losses arising from April 2022 will be subject to the normal carry back period of one year.
The amount of the loss that can be carried back to the earlier two years of the extended period is capped for each of those two years. A cap of £2,000,000 of losses applies for all relevant accounting periods ending in the period 1 April 2020 to 31 March 2021. A separate cap of £2,000,000 will apply for all relevant accounting periods ending in the period 1 April 2021 to 31 March 2022. Groups will be subject to a group cap of £2,000,000 for each relevant period.
Where companies have enough losses to enable them to make extended loss carry back claims under the temporary provisions for accounting periods ending between 1 April 2020 and 31 March 2022, they can instead choose to claim the one-year carry back under the pre-existing rules or not make a claim at all.
As also announced in the March 2021 Budget, the rate of corporation tax will increase from 19% to 25% from April 2023 for companies with profits over £250,000. Companies may therefore want to consider whether to take the cashflow benefit of making loss carry back claims or potentially greater tax relief at 25% from April 2023.
If you would like further detail on this, please contact Keith Rushen on 0044 207 4862378
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