Loss carry back rules extended
22/04/2009
The Budget proposes that the carry back of trading losses to relieve prior period profits and gains is to be extended from a one year carry-back to the three preceding years for a limited period.
The loss which may be carried back to the preceding 12 months is unlimited whereas the loss carry-back to earlier periods is to be limited to £50,000. The 2008 PBR in November 2008 announced that this would be introduced for accounting periods ending in the one year period to 23 November 2009. The Budget proposes that this is extended to allow a carry back to be made for accounting periods ending in the two year period to 23 November 2010.
Baker Tilly analysis
Many loss-making businesses will welcome this extension of the loss carry back rules although it is disappointing that the extended relief is limited to £50,000 for each tax year. The benefits are likely to be more significant for smaller practices because they are more susceptible to incurring losses due to one-off hits such as bad debts, whereas larger practices are more likely to be able to sustain hits without becoming loss-making.
In detail
Under current legislation members of a practice may offset trading losses against their other income and gains of the same, and the preceding year and obtain a repayment of tax paid on those profits and gains.
The Budget proposes that losses arising in 2008/09 and 2009/10 may be carried back to offset profits arising in the preceding three years in addition to the normal rule allowing one year carry-back against income and gains. The carry back to the preceding 12 months will continue to be unlimited whilst the carry-back to the two prior years will be limited to £50,000 for each year in which a loss is made, i.e. £50,000 each for 2008/09 and 2009/10.
Where losses are carried back for more than a 12 month period under the new rules it will be necessary to allocate the losses to later years first.