Groups of companies aside, to date all you have been able to do with a trading loss incurred by a company post 1st April 2017 has been:
- Set it off against other income of the same accounting period
- Carry it forward to be offset against profits of future accounting periods
- Carry it back and offset against profits in the previous 12 months
Things got a bit more generous on “tax day” when the Chancellor Mr Sunak announced that to support companies though the current economic turmoil, he was temporarily extending the period over which companies can carry back trading losses.
If a company has incurred a trading loss in an accounting period ending between 1 April 2020 and 31 March 2022, those losses can be carried back 3 years instead of the normal one year, the loss being set off against the latest year first.
There is a cap of £2,000,000 for losses taken back 2 or 3 years (there is no cap on a loss taken back just one year). That cap will only affect larger companies of course.
If we are looking at a group of companies, the cap of £2 million applies to the whole group.
There is also a nod towards smaller companies which is that, if it is clear they have incurred a trading loss, then for losses up to £200,000, relief can be claimed outside of the corporation tax return. In other words they can just write in and apply, the idea being that they do not have to wait for the statutory accounts to be prepared. It’s a nice idea but on a practical basis, given how long HMRC take to deal with the simplest bit of post at the moment, it might be quicker to do the accounts and tax return!
We will of course be helping our clients make the most effective use of any loss relief available.