For any small business, there is very little positive about making a loss over the course of an accounting period, except perhaps in allowing the possibility of claiming back some or all of the tax it has paid in the previous (profitable) period by way of making a ‘carry-back’ claim, under the Income Tax Act 2007 s64.
The logic of this is very sensible, as it should allow that business to bolster it’s cashflows just after (by virtue of it having made a loss) a difficult trading period. The trouble however was that losses could only be carried back one year, with the remainder being carried forward. But an announcement made in the Pre-Budget Report in Nov 2008 stated that, with immediate effect, for a limited time and under certain conditions, trading losses could be carried-back up to three years instead of one. This extended relief is available under Finance Act 2009 sch6 para1.
The three-year relief is available for trading losses made either during the 2008/09 and 2009/10 tax years for unincorporated businesses, or for accounting periods ending between 24th November 2008 and 23rd November 2010 for companies. There is a maximum of £50k that can be carried back to years’ two and three, although still no limit on the losses that can be carried back one.
So for example, a business that has made a loss in its most recent accounting period of £100k could make a claim to carry-back £50k one year, and another £50k against the preceding two years, so carrying back a total of £100k. The tax repayable will depend on what was paid in the first place (in the three preceding profitable years), but should be paid back quickly and with interest from HMRC. Note that any outstanding liabilities must be paid (or offset) first, and it may be the case that the business will be better-off carrying back only some or even none of any losses it has accrued, and so professional advice is a good idea.
Overall, for any business that is eligible, this is a really worthwhile opportunity to materially improve cashflows relatively quickly and painlessly, and we would advise all that have or are about to end a loss-making period to seriously consider making a claim.
We can of course assist you in putting that together.
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Great post, thanks.