Unlike an unincorporated business, losses of a company cannot be used against the owner’s personal income or Capital Gains. Instead, they are stuck within the company, unless the company is part of a group, when it may be possible for other group companies to use them instead.
Company trading losses that have been incurred since 1 April 2017 can be carried forward to set against total profits. There is also a one-year carry-back option available, again against total profits.
To help companies generate repayments of tax that and aid their cash flow, the loss carry-back has been temporarily extended to 3 years. Unlike the equivalent rule for unincorporated businesses, the extended carry-back is not restricted to trading profits, which will be useful, for example, where a company has both trading and rental income in earlier years.
The extended loss carry-back applies for accounting periods ending in the 12 months from 1 April 2020 and in the 12 months from 1 April 2021. For each of these accounting periods, the maximum loss that can be subject to the extended carry-back is £2m.
With Corporation Tax rates due to increase significantly for most companies from 1 April 2023, it is important to quantify the possible tax savings from the different loss relief options, although in most cases getting immediate tax repayments from the carry-back option will be preferred where a company is currently struggling for cash flow.
If your company is currently making losses, we can quantify the potential tax repayments you might generate and make sure that you meet all the claim deadlines.