As a measure of support for struggling businesses, the government announced that businesses will temporarily be able to carry back certain losses against profits which happened in the three years before the loss was incurred. This is instead of the current one year. This measure is available to sole traders, partnerships and companies.
Why does this matter for small businesses?
In short, the measure could enable larger tax refunds for loss making businesses. When losses are carried-back they reduce (or off set) the prior year’s profit. Any tax paid on the offset profits are refunded back to the business. By allowing businesses to carry back an extra two years’ worth of losses, companies can make use of the losses immediately and receive tax refunds now rather than waiting to benefit by carrying the losses forward to be used against future profits. This will, no doubt be a welcome relief for any businesses that have been adversely affected by coronavirus and are looking to boost their short-term finances sooner rather than later.
There are some conditions…
- Relief will be applied to the most recent year’s profits before being carried back to set against profits in earlier years.
- The maximum losses that can be carried back are £2million for each tax year/accounting period and are subject to group-level limit.
- Claims up to £200,000 can be made before a tax return, and can be submitted as soon as the relevant accounting period has ended and losses are quantified.
It is worth remembering that no repayments will be made until the Finance Bill 2021 becomes law, and this will take a few weeks.
Some smaller companies will see their Corporation tax rates increase to 25% in 2023 from its current rate of 19%, these companies may wish to consider carrying the losses forward instead for potentially a greater (but later) saving.
As Henry Ejdelbaum, MD of AIMS Accountants comments “Every bit of support for small businesses is good news for us and our clients. This option is a great one for businesses, but there are choices to make along the way and it is important for business owners to get it right to optimise the potential savings. Whoever you are getting help from, make sure you have thought it through and are getting good advice. “
For further information please contact:
Johan Da Silva
AIMS Accountants for Business
020 7616 6634
Notes to editors:
About AIMS Accountants for Business
Established in 1992 to provide SMEs a fixed fee service, free of any obligations, through franchised accountancy practices. For nearly thirty years our success has been driven by our singular client focus, our proven management systems and the ongoing support and training provided to all AIMS franchisees.
By doing more than just crunching numbers, by providing business advice and creating a solid relationship with our clients, we provide the services that has seen us become the only nationwide network of qualified accountants in the UK.