Extended loss carry back rules

Extended loss carry back rules: Overview

As part of a range of measures to support businesses post-covid, the extended loss carry back rules provide a temporary tax break for businesses.

Finance Act 2021 detailed new rules around taxation for companies providing for a temporary extension to the loss carry back legislation for trading losses for both incorporated and unincorporated businesses.

The new legislation means those eligible can save money on taxation – which is as important as ever as businesses navigate the post-covid landscape.

What is the three-year extension for Company taxation?

The present ruling means that company trading losses that have been accrued can be carried back one year without restriction. For accounting periods ending between 1 April 2020 and 31 March 2022, there is a three-year extension. Losses against profits from the most recent years must be set against, before carrying back to previous years.

£2m cap on one-year extended relief

For the current one-year extended relief, the amount of loss that can be carried back is capped at £2m for each of the earlier two years. Groups also have a group cap of £2m for each relevant period.

De minimis limit

In most instances, an extended loss carry back claim should be made on a company tax return. But there is no need to wait until the submission of a claims return below a de minimis limit of £200,000. This applies to any stand-alone or group company.

However, if the claim exceeds the de minimis limit of £200,000, then it must be made on a company tax return.

what are the commencement and duration of loss carry back?

The change can be applied to losses suffered in accounting periods ending between 1 April 2020 and 31 March 2022.

Unincorporated businesses

There are no alterations to the existing legislation that allow a trade loss for a tax year to be set against general income of the loss-making year and/or the previous year. Similar caps, as mentioned above, will also be in place for unincorporated businesses.

The three-year extension will add to the current trade loss relief against general income in section 64 of ITA 2007. It will apply where a claim has been made under section 64 of ITA 2007 to set a trade loss for 2020-21 or 2021-22 against general income of the current and/or previous year, and relief for the loss cannot be fully given under that claim. All other current loss reliefs will remain available.

The change is temporary and is only applicable to trade losses for tax year 2020-21 and 2021-22. Trade losses in 2022-23 will be subject to the regular one-year carry back rule.

How can companies make three-year extension claim?

For companies wanting to claim under the new rules, it can be done via the corporation tax return (by completing box 45). Claims to the extended loss relief must be made within two years of the end of the accounting period in which the loss being carried back arises.

Submission of amended corporation tax returns will not be permitted for the extended loss carry back claims. This is because in most cases the time limit for amendments will have lapsed.

How can unincorporated businesses make three-year extension claim?

Loss relief claims will normally be made in a person’s tax return. However, this is not required when a claim is made for more than one year. Stand-alone claims can be made as soon as the period in which the loss was made has passed.

The loss itself must also be calculated before the claim is submitted, and the claim must specify the name of the business, the period in which the loss was made, the amount of the loss, and how the loss is to be used.

What are the deadlines for Extended loss carry back?

• for a trade loss in tax year 2020-21, the claim deadline will be 31 January 2023;
• for a trade loss in tax year 2021-22, claim deadline will be 31 January 2024.

Making a claim: de minimis

Any business or individual wanting to make a de minimis claim will need to supply the below details directly to HMRC:

• unique tax reference (UTR);
• company/business name;
• agent code (if applicable);
• start and end dates of loss making accounting period;
• amount of loss;
• dates of accounting periods to carry the loss back to and the relevant amounts; and
• management accounts as a PDF if a tax return has not been completed for the loss-making accounting period.

Groups are also required to supply a loss carry-back allocation statement. These need to be made in writing and signed by an appropriate person on behalf of the nominated company. The statement must include the following:

• identify the ultimate parent of the group;
• list all the members of the 2020 or 2021 group as appropriate;
• list all the de minimis claims made by members of the group to include the name of each claimant company and claim amounts;
• state the total amount of relief given by the de minimis claims; and
• list the non de minimis claims made by members of the group to include the name of each claimant company and claim amounts.

Loss carry-back allocation statements have submission deadlines. For 2020 the submission deadline is 31 March 2023 and for 2021 it is 31 March 2024.

Any amendments to a de minimis claim would need to be made in writing, within 30 days of the original claim submission.