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Spring Budget 2021_businesses
Read time: 6 minutes
Last updated: 3 Mar 2021
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Spring Budget 2021: Temporary extension to carry back of trading losses for businesses

If your business is loss making where it was profitable prior to the pandemic, there is flexibility in utilising those trading losses to generate a tax repayment. The tax repayment may be greater than originally estimated and provide cashflow benefit to you and your business. 

One of several measures announced in the Budget is an extension to the trading loss carry-back rules from one year to three years for otherwise-viable UK businesses which have been pushed into a loss-making position. This will be available to both incorporated and unincorporated businesses and aims to help businesses which have suffered from the pandemic, leading to trading losses in the short term.

This temporary measure provides additional flexibility in utilising trading losses for businesses which were successful and profitable before the start of the pandemic and have since turned loss making. The purpose of this measure is to provide cashflow benefit to these businesses in reclaiming taxes paid for two additional years. It should be noted that it applies to trading losses only. 

This measure will have effect for company accounting periods ending in the period 1 April 2020 to 31 March 2022 and for tax years 2020/21 and 2021/22 for unincorporated businesses. There are limits that apply: 

Corporation tax: 

  • In line with the existing rules, there is no limit on the amount of trading losses that can be carried back to the preceding year.  
  • There is a limit of £2,000,000 of losses that can be carried back to years 2 and 3. The £2,000,000 limit applies separately in each loss making year.
  • Companies that are members of a corporate group will be subject to a group-level limit of £2,000,000.   

Income tax:

  • Again, there is no limit on the amount of trading losses that can be carried back to set against trading profits of the preceding year.
  • Also, the current restrictions to carry back losses from a trade against general income will remain. 
  • A separate £2,000,000 cap will apply to the extended carry back of losses made in 2020/21 and 2021/22. 
  • The £2,000,000 limit applies separately to the unused losses of each tax year within the duration of the extension. 
  • Partners of partnerships / LLPs subject to income tax will not be subject to a partnership level limit.  

Where losses exceed this limit for both incorporated and unincorporated businesses, the balance of the loss not carried back to a previous accounting period will be carried forward and set against future profits of the same trade. 

Businesses will need to ensure that the loss claims are made correctly through their tax returns by the relevant deadlines to claim their tax repayments.  

If your business will be able to make a claim, submit your tax return as soon as possible to obtain the earliest repayment. 

About the author

James Currie

+44(0)20 7556 1319
Curriej@buzzacott.co.uk

One of several measures announced in the Budget is an extension to the trading loss carry-back rules from one year to three years for otherwise-viable UK businesses which have been pushed into a loss-making position. This will be available to both incorporated and unincorporated businesses and aims to help businesses which have suffered from the pandemic, leading to trading losses in the short term.

This temporary measure provides additional flexibility in utilising trading losses for businesses which were successful and profitable before the start of the pandemic and have since turned loss making. The purpose of this measure is to provide cashflow benefit to these businesses in reclaiming taxes paid for two additional years. It should be noted that it applies to trading losses only. 

This measure will have effect for company accounting periods ending in the period 1 April 2020 to 31 March 2022 and for tax years 2020/21 and 2021/22 for unincorporated businesses. There are limits that apply: 

Corporation tax: 

  • In line with the existing rules, there is no limit on the amount of trading losses that can be carried back to the preceding year.  
  • There is a limit of £2,000,000 of losses that can be carried back to years 2 and 3. The £2,000,000 limit applies separately in each loss making year.
  • Companies that are members of a corporate group will be subject to a group-level limit of £2,000,000.   

Income tax:

  • Again, there is no limit on the amount of trading losses that can be carried back to set against trading profits of the preceding year.
  • Also, the current restrictions to carry back losses from a trade against general income will remain. 
  • A separate £2,000,000 cap will apply to the extended carry back of losses made in 2020/21 and 2021/22. 
  • The £2,000,000 limit applies separately to the unused losses of each tax year within the duration of the extension. 
  • Partners of partnerships / LLPs subject to income tax will not be subject to a partnership level limit.  

Where losses exceed this limit for both incorporated and unincorporated businesses, the balance of the loss not carried back to a previous accounting period will be carried forward and set against future profits of the same trade. 

Businesses will need to ensure that the loss claims are made correctly through their tax returns by the relevant deadlines to claim their tax repayments.  

If your business will be able to make a claim, submit your tax return as soon as possible to obtain the earliest repayment. 

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