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

Struggling 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 12 month accounting period. Whilst the relief is available to all companies, the benefits for the smaller companies are likely to be more significant.

In detail

Under current legislation a company may offset its trading losses against its other profits and gains of the same accounting period, and to the extent that it cannot offset those losses, it may carry the balance of those losses back to offset the company’s profits and gains arising in the preceding twelve months and obtain a repayment of corporation tax paid on those profits and gains.

The Budget proposes that for accounting periods ended in the period 24 November 2008 to 23 November 2010 that losses arising in those periods may be carried back to offset the company’s profits and gains arising in the preceding three years. 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 per twelve month accounting period.

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.