TT351: New Company Loss Carry Back Rules

July 23, 2021

HMRC have updated their guidance on claiming relief for company trading losses to take account of the extended carry back announced in the Spring Budget and now legislated in the Finance Act 2021. The guidance sets out the circumstances where loss relief can be claimed in advance of submitting a return. This feature will potentially accelerate relief for smaller companies with cash flow pressures.

Temporary extension to carry back of trade losses

In the Budget 2021, the Chancellor announced a temporary extension to the carry back of trading losses from one year to 3 years, for losses up to £2,000,000 for accounting periods ending between 1 April 2020 and 31 March 2022. Losses must be set against profits of most recent years first before carrying back to earlier years.

There is no change to the current one-year unlimited carry back of trade losses, however, for the extended relief, the amount of loss that can be carried back to the earlier 2 years of the extended period is capped for each of those 2 years. This is a cap of £2,000,000 of losses for all relevant accounting periods ending in the period 1 April 2020 to 31 March 2021 (financial year 2020).

Groups will be subject to a group cap of £2,000,000 for each relevant period. Extended loss carry back claims will need to be made in a return, however, claims below a de minimis limit of £200,000 may be made outside a return.

This means that any standalone or group company with losses capable of providing relief up to a maximum of £200,000 may make a claim in respect of a relevant accounting period without having to wait to submit its company tax return.

Make a de minimis claim in advance of submitting a return

The guidance lists details required by HMRC where a company is making a claim for loss relief in advance of submitting its CT600 corporation tax return, where the loss is no more than £200,000 and the relevant information required is;

  • UTR.
  • Company name.
  • Agent code (if applicable).
  • Start and end dates of loss making accounting period.
  • Amount of loss.
  • Dates of accounting periods to carry the loss back to and the relevant amounts.
  • Management accounts as a PDF if a tax return has not been completed for the loss-making accounting period.

For individuals there is also a temporary increase to three years to the time that losses incurred in 20/21 or 21/22 may be carried back. As for corporates, there is a £2,000,000 limit on claims under this extension of the relief. Note though, that unlike the corporate version of the relief, individuals will only be able to set the losses against profits of the same trade. Whilst this is more restrictive, the upside is that the existing restrictions on otherwise unrestricted reliefs are not engaged.

As for companies there is a facility to claim extended carry back outside a tax return, although unlike for companies there is no de-minimis level above which the claim must be in a tax return.

If you need more information about the changes, please contact your Barnes Roffe partner for a more detailed appraisal.

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