Our experience as accountants and business advisers over the last 15 months is that some companies have had a truly awful time, while others (perhaps inevitably) have prospered.

Just look at Amazon, reports suggest that our shop and work from home habits have contributed to a tripling of their profits, and it makes sense; while high street businesses were forced to remain closed, online retailers were in a great place to take market share. On the positive side, I very much hope that the ‘shop local’ vibes we’ve experienced in our village, with people taking advantage of deliveries from the butcher and greengrocers, will continue.

For some businesses, getting through the pandemic has been a real struggle and not all of them have qualified for government support. I’ve mentioned in my previous blogs that furlough has been unavailable for many owner-managed companies where the owners have taken dividends as their main source of income. This is a well-documented problem that has not been rectified, but this isn’t a political blog and I am not debating the rights or wrongs of that decision.

3 year loss carry back

As a reminder, a new temporary 3 year loss carry back facility has been offered, which may prove invaluable to those businesses who have been truly challenged by COVID-19. The normal rules were that a trading loss could be carried back to the prior year only, however for accounting periods ending between 1 April 2020 and 31 March 2022 (for companies), trade losses can be carried back 3 years, this applies to tax years 20/21 and 21/22 for unincorporated businesses.

An example

Let’s say you had a June 2020 year end and your 3 months in lockdown 1 were pretty poor but the earlier 9 months were ok, meaning you broadly broke even for the year. Then, the year to June 2021 looks to be terrible with a large loss, you will be able to take those losses back to the years June 2019 and June 2018 to claim a tax refund. Under previous rules the losses could only carry forward.

This relief could be a particularly beneficial aid for viable businesses who just need a cashflow boost to get back up and running when things are returning to the ‘new normal’.

A final positive

HMRC are sympathetic to these carry back claims, and it’s hoped that the process will be relatively straightforward, with claims processed quickly once Royal Assent has been received to the legislation (hopefully mid-July). It’s even suggested that HMRC will make repayments early in some circumstances.

Whilst losses are not good news, this additional tax relief for them could well be, so if you want some help on making a claim as early as possible just get in touch.

Kate Naylor
Kate Naylor
Tax Partner

Kate works with businesses and their owners on tax strategies and mitigation, looking at business and personal tax structures to achieve long term goals.

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