Due to the impact of COVID-19, the government is allowing businesses who have suffered significant losses, an opportunity to get some additional cash back into their struggling business.
In the 2021 Budget changes were announced to enhance the current Loss Relief Rules. The enhanced relief is mainly targeted at the more stable businesses who were previously successful and have suffered unforeseen losses as result of the global pandemic. Ultimately, it’s for those businesses that stand the greatest long-term chance of employing people again and paying tax in the future.
For those businesses that have been hit hard by COVID, you can receive a cash boost of up to two years extra tax back, for years previously paid to help get through these challenging times.
For business that have made a trading loss since April 2020 and/or forecast to make a loss up until 31st March 2022, those losses can now be carried back over the last three previous accounting periods/tax years, not just the last one.
The relief is capped at £2m of losses for each year that the relief is in place (£4m in total), and will only benefit limited companies, sole traders and partnerships that have made a profit in one or more of the last three years.
Your immediate thoughts are probably ‘great, sign me up!’. However, depending on your business circumstances you need to consider the different options to ensure you maximise this opportunity for your business.
There are three main options:
For businesses with large losses a combination of all three should be considered.
On the losses brought forward the is restriction on the use of the loss. The maximum claim on brought forward losses is the deduction allowance of £5 million per group or standalone company plus 50% of unrelieved profits above that profit.
From 1 April 2020, the £5 million deductions allowance is shared between income and capital profits. The amount which may be claimed in relation to income profits is restricted to the amount which is not used against chargeable gains.
Once the loss has been established, the claim must be made in your company's corporation tax return for the year in which the trading loss is made.
If the return has already been file, you can make an amendment to the return within 1 year of the filing deadline.
As you are claiming a corporation refund, you will need to put an X in box 45 (claim or relief affecting an earlier period) in the CT600 and include the company's bank details. You should not need to file an amendment to the previous return.
It is usually necessary to include supporting documents of how HMRC should utilise the loss as otherwise no action will be taken. A claim can be made earlier by writing to HMRC about the loss and how it should be utilise and enclosing draft management accounts as evidence.
A claim will be made by your self-assessment tax return.
The deadline for making the claim is 1 year after the filing deadline (for amendments)
If a claim affects more than 1 year, a claim can be made via letter to HMRC.
A claim can be made as the loss making period has ended and the loss has been fully calculated.
If your business has made a loss and is eligible to claim R&D Tax Relief, or even Creative Tax Relief, it’s important we consider this alongside the above options. You need to explore the best way to utilise these trading losses – we can help make sure you do this in the most favourable way.
If your business has made a trading loss since April 2020, book a call and let’s discuss the best route to get a tax relief cash bonus back into your business.
This article was written for Construction Insider by Saint Financial Group, a multidisciplinary group based in the UK that helps construction businesses develop and grow. SaintFG offers a range of quality solutions in supporting businesses.
Saint provides the luxury of free business consultancy for of our clients, call now for your free consultation with a friendly business advisor to discuss your burning questions and put that energy back into your business!
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