22nd March 2021 / Tax

The loss carry back scheme has been extended

There has been an extension in the loss carry back scheme. This is more good news for incorporated or unincorporated UK businesses.

Geoff Selby, Business Director

What is the loss carry back scheme?

Typically, when a business makes losses within an accounting year it can carry those losses forward to be offset against the next years trading profits; or they can be carried back if there were profits in the previous year thus getting a proportional repayment of corporation tax for an incorporated business or repayment of taxes paid against profits if unincorporated

What is this extension?

  • The carry back period has been extended to three years to March 2022 - applicable to accounting periods ending between April 1st 2020 and 31st March 2022.
  • Losses can be carried back for up to three years therefore potentially creating a much-needed cash injection at what is a critical time for business.
  • It is available to both incorporated or un-incorporated businesses.
  • Losses are required to be off-set against profits from the most recent years first before carry back to previous years.
  • It will potentially enable a greater cash injection from tax paid in the three previous, profitable years.
  • The extended loss carry back is available for all companies and groups carrying on trades, professions or vocations.

Further details are available from HMRC’s guidance note.

This extension acknowledges the existing and continuing trading difficulties and will provide companies with an opportunity to receive a cash injection - by way of a refund of corporation tax paid for the incorporated business, or reclamation of taxes paid against profits for the unincorporated business in previously profitable years.

Gemma Martin, Director

For an Unincorporated Business:

  • The same applies for an unincorporated business that has continued in the same trade.
  • Unless you were ceasing your business within the tax year losses could previously be carried back for one year.
  • There is now a temporary extension so that trading loss made during the years 2020/21 and 2021/22 can be carried back and reclaimed against tax paid for profits (ensuring you are still in the same trade) in the previous three years.
  • As this also incorporates the 2021/22 tax year it shows that the government is acknowledging the fact that difficulties may well continue throughout as we emerge from the latest lock-down.
  • For an unincorporated business, it will be vital to get your records into your accountant as quickly as possible after the end of each tax year so calculations can be made if this rule applies to you. Don’t delay and you will get the repayment quicker!

This is great news for those viable businesses that have been severely impacted by the pandemic.

Geoff Selby, Director

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