More generous 'trade losses' carry back rules

The loss carry back rules are to be extended, for corporation tax accounts ending between 24 November 2008 and 23 November 2009. For unincorporated businesses, the measure will have effect in relation to trading losses for tax year 2008/09. This change only applies for one year.

Baker Tilly analysis

This measure will provide all businesses regardless of size, incurring losses with the ability to obtain loss relief sooner than would otherwise have been the case. Under the existing rules in excess of the previous years profits would have been carried forward. Businesses will therefore be able to obtain a cash repayment of tax already paid.

In detail

Businesses will be able to carry back losses against profits of the preceding three years. The amount to be carried back under the new provision is however capped. Whilst the amount of losses that can be carried back to the preceding year remains unlimited, after carry back to the preceding year, a maximum of £50,000 of the balance of unused losses is then available for carry back to the earlier two years.

Example

Company prepares accounts for the years 31 December 2005, 31 December 2006 and 31 December 2007 showing taxable profits of £80,000, £30,000, and £40,000 respectively. If, in the year ended 31 December 2008 it makes losses of £110,000 whereas it would previously have only been able to carry back £40,000 (removing from tax the £40,000 profits in the year ended 31 December 2007), it will now be able to carry back £30,000 to the year ended 31 December 2006 and £20,000 to the year ended 31 December 2005. The remaining £20,000 will be carried forward for relief in a future year.