Tax & Accounting News

Making Losses Go Further

28/04/2009

When a company makes a trading loss, how that loss is relieved against profits can make a significant difference to the firm’s future financial health.

Generally, the current rules allow an offset against other profits in the same accounting period, total profits in the preceding 12-month period or trading income from the same trade in subsequent accounting periods.

However, the ‘carry back’ provisions have been temporarily extended to three years if a trading loss is made between 24 November 2008 and 23 November 2010. There is no limit on the loss which can be carried back for one year, while a total of £50,000 may be assigned to the previous two years.

For example, if a firm made a loss of £150,000 in the year ending 21 December 2008, having made a profit of £90,000 in 2007 and £40,000 in each of the previous two years it could carry back losses of £90,000 to 2007 without any limit. Under the new rules it could also carry back £40,000 to 2006 and £10,000 to 2005, leaving just £10,000 to carry forward to future periods.

A company can make a claim for loss relief as soon as the accounting period in which the loss was made has ended, by submitting a corporation tax return for that period.

There are similar rules for unincorporated businesses but the loss must have been made in an accounting period ending in the 2008/09 tax year, i.e. before 31 March 2009.

For more information please contact us.

 

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