In an effort to help small businesses in the wake of the credit crisis, The Government announced in the pre-budget report the extension of the Carry Back rules for losses under S393 of ICTA 1988 from 12 months to three years.
They have also pledged that they will accelerate the time in which rebates are made to assist with cash flow.
The legislation, made actual with effect from April 22nd 2009 will enable companies expecting to make losses, who have an accounting period ending between 24th November 2009 and 23rd November 2010 to carry back their losses.
They are able to make an application to HMRC for relief despite the final actual loss being known. Provisional loss claims (S64 ITA 2007) must be applied for by January 2011.
Companies that have paid corporation in the previous three years can now apply to offset a maximum of £50,000 for each of those years applying the carry back to the earliest of the three years (previously only one year, 3 years for start-ups and companies ceasing to trade).
Example
| Year Ending |
Profit |
Loss |
Carry Back |
Carry Forward |
| 2009-10 |
|
£130,000 |
|
£10,000 |
| 2008-09 |
£70,000 |
|
£70,000 |
|
| 2007-08 |
£40,000 |
|
£40,000 |
|
| 2006-07 |
£40,000 |
|
£10,000 |
|
Losses carried back to the previous year remain uncapped, so in the above example the loss can be claimed against the full year's £70,000 profit.
Carry back to the 2nd and 3rd years will be capped at £50,000 each year, so only £40,000 of the 2nd year's loss can be carried back against the £40,000 profit and the remaining £10,000 of the £50,000 cap carried back to the 3rd year.
This leaves a remaining £10,000 overall loss to be carried forward against future years profits.
Where a company does not have previous year's profits to carry back losses against, it will still be able to carry them forward against future year's profits.
You can find full information on the HMRC website.