What a (tax) relief! Carry back of trading losses and more

4th June 2021

As you will no doubt know, in the March 2021 Budget the Government announced further support to businesses affected by the coronavirus pandemic. As tax advisers, we’re always looking out for ways to reduce your tax bill. Here, we focus on some of the less well known tax relief opportunities, starting with the ‘carry back of trading losses’ extension …

Temporary extension to ‘carry back of trading losses’

The government has extended the period in which trading losses can be carried back for tax relief purposes. This applies to corporation tax (for public limited and private companies) and income tax (for unincorporated businesses).

The extension will be especially useful for businesses that were profitable pre-pandemic but have been adversely affected and incurring losses since. It could provide vital cashflow by generating repayments for tax paid for two additional years.

What are the rules?

Companies who pay Corporation Tax

This extension will apply to trading losses made in accounting periods ending between 1 April 2020 and 31 March 2022. The amount of trading losses that can be carried back to the preceding year remains unlimited.

However, for the extended relief, the amount of loss that can be carried back to the earlier two years of the extended period is capped for each of those two years. After carry back to the preceding year, a maximum of £2 million of unused losses will be available for carry back against profits of the same trade in the earlier two years.

Note: this £2 million cap is on the extended carry back of losses incurred in accounting periods ending in the period 1 April 2020 to 31 March 2021. There would be a separate £2 m cap on the extended carry-back of losses incurred in accounting periods ending in the period 1 April 2021 to 31 March 2022.

It is not pro-rated for short accounting periods.

The cap will be subject to a group-level limit, requiring groups with companies that have capacity to carry back losses in excess of a de minimis of £2 m to apportion the cap between its companies.

Any extended relief available will be carried back to be offset against profits from the most recent years first. Claims must be made within two years of the end of the accounting period in which the loss being carried back arises.

This means a potential total cash refund of up to £760,000 is available to companies in the two years this extended relief is available. That’s because a company that makes a loss in the year to 31 December 2020 can now carry back up to £2 m of losses against profits in the years ended 31 December 2018 and 2017 if needed, and similarly it can carry back a further £2 m of loss arising in the year ended 31 December 2021 to the years ended 31 December 2019 and 2018 if needed.

For businesses who pay Income Tax

The rules about the amount of losses arising from trades, professions and vocations that can be carried back by individuals to set against income of the preceding year remain unchanged. However, the new rules allow unused losses to be carried back a further two years (against profits from the same activity only).

A £2 m cap applies to the extended carry back of losses made in each of the tax years 2020 to 2021 and 2021 to 2022.

Income Tax payers will not be subject to a partnership-level cap.

Do you have to file a tax return to claim?

Claims can legally be made once the Finance Bill has received Royal Assent. Most claims will have to be made as part of a tax return. If you’re a company with losses of up to £200,000 per year then you don’t have to wait until the corporation tax return is filed to make the extended loss carry back claim. Individuals can make a claim outside of their tax return if it will affect more than one period. These claims outside of the returns can be made as soon as the loss has been calculated.

Further information from the Government on the carry back of trading losses is here.

Other useful forms of tax relief

 

Venture Capital Schemes: extension of the Social Investment Tax Relief

The government will continue to support social enterprises that are seeking growth investment by extending the operation of Social Investment Tax Relief to April 2023. This will continue the availability of income tax relief and capital gains tax hold-over relief for investors in qualifying social enterprises.

Pensions Lifetime Allowance

The lifetime limit sets the maximum figure for tax-relieved savings that an individual can build up over their lifetime. Legislation will be introduced to remove the annual link to the CPI increase for the next five years. This will maintain the standard Lifetime Allowance at £1,073,100 for tax years 2021/22 to 2025/26.

Van benefit charge nil tax rating for zero-emission vans

Since 6 April 2021, a nil rate of tax applies to zero-emission vans within the van benefit charge. In 2020/21 such vans have a van benefit charge at 80% of the standard flat rate of £3,490.

Employer-reimbursed coronavirus tests

The government is introducing a retrospective income tax exemption for payments that an employer makes to an employee to reimburse for the cost of a relevant coronavirus antigen test. This is for the tax year 2020/21. Legislation will extend this exemption for the tax year 2021/22. The change will have effect on and after Royal Assent of Finance Bill 2021 (likely to be before the parliamentary summer recess in July). The corresponding NICs disregard is already in force and this will also be extended for the tax year 2021/22.

Extension of income tax exemption for COVID-19 related home office expenses

The government will, by secondary legislation, extend the temporary income tax exemption and Class 1 NICs disregard for employer reimbursed expenses that cover the cost of relevant home office equipment. The extended exemption will have effect until 5 April 2022.

Business rates relief – England

Business rates have been devolved to Scotland, Northern Ireland and Wales. The Chancellor announced a continuation of 100% business rates relief for eligible retail, hospitality and leisure properties in England to 30 June 2021. This will be followed by 66% business rates relief for the period from 1 July 2021 to 31 March 2022, capped at £2 million per business for properties that were required to be closed on 5 January 2021, or £105,000 per business for other eligible properties. Nurseries will also qualify for relief in the same way as other eligible properties.

Super-deduction

Between 1 April 2021 and 31 March 2023, companies investing in qualifying new plant and machinery will benefit from new first year capital allowances. Under this measure a company will be allowed to claim: 1) a super-deduction providing allowances of 130% on most new plant and machinery investments that ordinarily qualify for 18% main rate writing down allowances 2) a first year allowance of 50% on most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances. This relief is not available for unincorporated businesses.

First year allowances for business cars since April 2021

In Budget 2020, the Chancellor announced the extension of 100% first year allowances for zero-emission cars, zero-emission goods vehicles and equipment for gas refuelling stations by four years from April 2021. CO2 emission thresholds have also been amended from April 2021. These determine the rate of capital allowances available through which the capital expenditure for business cars can be written down. The thresholds will be reduced from 50g/km to 0g/km for the purpose of the first year allowances for low CO2 emission cars and from 110g/km to 50g/km for the purpose of writing down allowances (WDAs) for business cars.

You can read further details on the March 2021 Budget in our online guide.

For more information or advice on any of these matters, please contact us.

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