The Budget 2021 had some great news for many businesses because it allowed 3 year carry back of losses.
Originally the bill included Furnished Holiday Lets (FHLs) but that has now been changed and FHL’s are now excluded.
The loss relief works as follows………
Legislation introduced in Finance Bill 2021 to extend the period for which trading losses can be carried back against previous profits. This extension will apply to trading losses made by companies in accounting periods ending between 1 April 2020 and 31 March 2022 and to trading losses made by unincorporated businesses in tax years 2020 to 2021 and 2021 to 2022.
Trade loss carry back will be extended from the current one year entitlement to a period of 3 years, with losses being carried back against later years first.
Corporation Tax
The amount of trading losses that can be carried back to the preceding year remains unlimited for companies. After carry back to the preceding year, a maximum of £2,000,000 of unused losses will be available for carry back against profits of the same trade to the earlier 2 years. This £2,000,000 limit applies separately to the unused losses of each 12 month period within the duration of the extension.
This means a cap of £2,000,000 on the extended carry back of losses incurred in accounting periods ending in the period 1 April 2020 to 31 March 2021 and a separate cap of £2,000,000 on the extended carry-back of losses incurred in accounting periods ending in the period 1 April 2021 to 31 March 2022.
The £2,000,000 cap will be subject to a group-level limit, requiring groups with companies that have capacity to carry back losses in excess of a de minimis of £200,000 to apportion the cap between its companies.
Income Tax
The amount of trading losses that can be carried back by individuals to set against profits of the preceding year remains unlimited. The current restrictions to carry back losses from a trade against general income will remain.
A separate £2,000,000 cap will apply to the extended carry back of losses made in each of the tax years 2020 to 2021 and 2021 to 2022.
This £2,000,000 limit applies separately to the unused losses of each tax year within the duration of the extension. Income Tax payers will not be subject to a partnership-level limit.
