Extended carry back of trading losses for businesses.

Retail, hospitality and leisure businesses

Businesses (companies and sole traders / members of a partnership) can currently offset losses made in their trade against other income and gains in the same or previous year. These rules have been temporarily extended so that trading losses made during the pandemic can be carried back up to 3 years.

Companies

The extended carry back rules apply to accounting periods ending in the period 01/04/20 to 31/03/22. Trading losses arising in those accounting periods can be carried back and set against total profits of the previous 3 years. They must be set against later years first on a LIFO basis. This extended relief is capped at £2m for each year of loss.

For groups of companies there is a group wide cap of £2m for each accounting period. Where any company in a group wishes to claim more than a de minimis amount of £200,000 then this triggers group wide reporting requirements under which a nominated company must submit an allocation statement to HMRC showing how the £2m is allocated between group members.

Claims will usually be made in a corporation tax return. Stand-alone claims may be possible in advance of submitting the return provided the claim is below £200,000 and it can be quantified appropriately.

Unincorporated trades

Trading losses made in a tax year can currently be set against total income of that year of assessment and/or the previous year of assessment, subject to a cap against general income of £50,000 or 25% of total income. This has not changed. However, trading losses arising in the tax years 2020/21 and 2021/22 can be carried back and set against trading profits of the previous 3 tax years. Losses for these years must first be claimed under existing rules for either the current or previous year, if possible, before this extended relief can be claimed for any unused losses. There is a cap of £2m losses which can be claimed in this way.

A stand-alone claim for the extended relief can be made as soon as the basis period for which the loss has been made has ended.

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