'Carry back' extension for trading businesses
Under existing rules, trading businesses can carry back trading losses and offset them against the total taxable profits of the previous 12 months. This period will be extended to 36 months in the Finance Act 2009.
Carry backs enable trading businesses to reduce their tax liability and generate repayments of tax. The Chancellor announced the two-year extension, for both companies and unincorporated businesses, in his April Budget. But it will only apply to company accounting periods ending between 24 November 2008 and 23 November 2010 and, for unincorporated businesses, to trading results taxable in the 2008/09 and 2009/10 tax years. Only £50,000 of losses arising in each loss making period can be carried back further than one year, meaning a total potential additional relief for £100,000 of losses over the two year extension.
Opportunity knocks
The amount of tax relief available will depend on the extent of the profits made in the previous 36 months. If your business has already incurred - or expects to incur - trading losses, don't miss this opportunity to save tax and help your cash flow. The only exception would be if the level of losses you can carry back is so low that it isn't worth the additional cost of re-submitting previous tax returns.
The existing three-year carry back rules that apply to the cessation of a trade, or to the early years of an unincorporated business, are unaffected by the new relief.
Act quickly
If you expect to make losses in the future, you can make provisional loss relief claims early. This will put existing tax liabilities on hold, helping your cash flow, in the expectation that the tax bill will be reduced by carry back losses.
If you think your business could be in this position, speak to your usual Littlejohn tax adviser as soon as possible so that we can make the necessary submissions to HMRC.
