Legislation will be introduced in Finance Bill 2021 to temporarily increase the period over which companies can carry back trading losses from one year to three years. For companies, after carry back to the preceding year (which remains unlimited) a maximum of £2,000,000 of unused losses will be available for carry back against profits of the preceding two years.
Losses must be carried back in order, with set off against profits of the most recent year before earlier years. There is a total cap of £2,000,000 that applies as the maximum loss that can be carried back from each year of extended loss carry back. This means a cap of £2,000,000 of losses incurred in accounting periods ending in the period 1 April 2020 to 31 March 2021 and a separate cap of £2,000,000 on losses incurred in accounting periods ending in the period 1 April 2021 to 31 March 2022.
In addition, there will be a group cap of £2,000,000 that will be apportioned between members of the same group of companies – the detail of this is yet to be published.
There will be a de minimis limit of £200,000 per company which can be made outside of the group wide cap. Any group claims which exceed the de minimis will be limited by the amount of total claims, including de minimis amounts by the group.
Only trading losses can benefit from the extended relief.
All standalone companies and groups (including companies within the oil and gas ring fence regime).
The change will apply to losses arising in accounting periods ending between 1 April 2020 and 31 March 2022. Legislation will be introduced in Finance Bill 2021.
The temporary extension of the loss relief is welcome and will be helpful to many companies which have incurred losses throughout 2020. Legislation will need to be considered to fully understand any applicable conditions and restrictions, as well as the interaction with the existing loss reliefs. Given the increase in corporation tax rates from 2023 companies will need to consider the benefit of immediate tax relief at lower rates compared to future relief at higher rates.