How carry back rules help if you make losses

How carry back rules help if you make losses

When running a business you need to be profitable but some circumstances can lead to making losses.

Over the past 18 months, Covid measures might mean your usually profitable company has been unable to operate as usual. As a result, you maybe facing up to the fact you have made trading losses in the business.

While it is always a struggle when you make losses, there is a government scheme that can help you. Carry back rules allow you to offset the losses against the profits in the previous year and you receive relief in the form of a refund.

Carry back rules

The Chancellor announced in the Budget in March 2021 that the ‘carry back scheme’ would be extended to help businesses facing uncertainty due to Covid measures.

Under the scheme, relief is being offered to help businesses continue trading while everyone adjusts to life post-pandemic.
Normally, you only pay Corporation Tax and Income Tax on profits after year-end.

Carrying back a trading loss

‘Carrying back’ your trading losses is simply a rule where you take a year where you make a loss and carry it back to the previous year when you made profits. As a result, you reduce the amount of profit made that year, which means a lower tax bill.

But, of course, you will have already paid that bill! So, you are able to claim a reimbursement of the Corporation Tax or Income Tax paid in the previous year.

Normally, you are only allowed offset the losses using the carry back scheme in a 12-month period. But as a result of the Budget announcement, you are able to carry back losses against the previous three years, starting with latest years first. The maximum losses claimed against is set at £2 million.

Be aware that this is a temporary measure that will only last two years.

Accounting periods for new carry back rules

If you are a limited company, the three-year extension applies to trading losses that occurred in accounting periods which end between 1 April 2020 and 31 March 2022.

The extension for unincorporated businesses, such as sole traders and partnerships, applies to trading losses in the tax years 2020-21 and 2021-22.

How do I claim?

As ever in taxation, speaking to an expert will help you make a successful claim. You can always contact the team here at Concept Accountancy.
Claiming relief using the carry back rules is usually part of your company tax return or amended tax return. You can make a standalone claim and will need to include:

  • Your business’s name
  • Amount of losses
  • Tax period in which the loss has taken place
  • How the loss is utilised

You can also make a claim after everything is submitted. Any tax that has already been paid during the carry back period generates a refund. If you owe Corporation Tax it will be then deduced from your bill.

Covid support grants

You must remember that any government-based coronavirus grants in relation to your business should be included as trading income. Whether that was the job retention scheme, business support or self-employment income support scheme grants, they are counted as taxable income.

Get in touch if you want to know more about Concept Accountancy can help you by calling us or emailing us today.