If, as a result of the pandemic, your business has made loses during the past year, you may be able to utilise these losses as a source of funds

In the recent Budget, the Chancellor announced an extension to the loss relief provisions for corporation tax so that trading losses made in accounting periods ending between 1 April 2020 and 31 March 2022 can be carried back three years rather than the usual one year.

A similar extension is available to unincorporated businesses for losses made in the 2020/21 and 2021/22 tax years.

The amount of loss that can be carried back to the most recent prior tax year is unlimited, but there is a cap of £2m on the loss that can be carried back to each of the preceding years and there are some additional considerations for groups of companies. 

So for businesses that have experienced a loss in the last year, getting your accounts and tax returns prepared early and filing these with HMRC could unlock a repayment of tax paid in previous years and bring some much-needed positive cash flow.

Interestingly, however, this measure has been identified as revenue raising in the Budget publications. By using losses early rather than carrying them forward, the Government expects that more profits will be subject to corporation tax at the higher rate of 25 per cent from 1 April 2023. For larger companies that can afford to do so, carrying forward may therefore be a better use of their losses, but for small businesses there is an opportuntiy to generate some much-needed funds.

Noel Guilford