The Government introduced legislation in Finance Act 2021 that provides a temporary extension to the loss carry back rules for trading losses of both corporate and unincorporated businesses.
The current rules allow trading losses to be carried back one year without restriction. For accounting periods ending between 1 April 2020 and 31 March 2022, this is extended to three years, with losses required to be set against profits of most recent years first before carry back to earlier years.
There is no change to the current one-year unlimited carry back of trade losses, however, for the extended relief, the amount of loss that can be carried back to the earlier 2 years of the extended period is capped for those 2 years. This is a cap of £2,000,000 of losses for all relevant accounting periods ending in the period 1 April 2020 to 31 March 2021 (financial year 2020). A separate cap of £2,000,000 applies for all relevant accounting periods ending in the period 1 April 2021 to 31 March 2022 (financial year 2021). Groups are subject to a group cap of £2,000,000 for each relevant period.
Extended loss carry back claims must be made in a return, however, claims below a de minimis limit of £200,000 may be made outside a return. This means that any stand-alone or group company with losses capable of providing relief up to a maximum of £200,000 of losses, may make a claim in respect of a relevant accounting period without having to wait to submit its company tax return.
Any stand-alone company or group company wishing to make a claim exceeding £200,000 must make the claim in their company tax return.
Groups are subject to a group cap of £2,000,000 where any company is able to make a claim that exceeds the de minimis. Any de minimis claims for the relevant period will be taken into account in determining the total amount available for any claims in excess of the de minimis.
Source: HM Revenue & Customs