A new temporary extension to the eligible carry back period for trading losses has been announced. This will allow trading losses to be carried back for three years (rather than one). The extension to the relief applies to both incorporated and unincorporated businesses and is subject to a £2,000,000 cap.
The relief will apply for company accounting periods ending between 1 April 2020 and 31 March 2022 and for tax years 2020-21 and 2021-22 for unincorporated businesses.
The new relief is designed to help businesses who have suffered increased losses as a result of the coronavirus pandemic. Carrying back a trading loss may allow businesses to generate tax repayments from an earlier profit-making period.
The extension will apply to a maximum £2,000,000 of unused trading losses made in each of the tax years 2020-21 and 2021-22 by unincorporated businesses. The £2,000,000 maximum applies separately to unused trading losses made by incorporated companies, after carry-back to the preceding year, in relevant accounting periods ending between 1 April 2020 and 31 March 2021 and a separate maximum of £2,000,000 for periods ending between 1 April 2021 and 31 March 2022.
The £2,000,000 cap will be subject to a group-level limit, requiring groups with companies that have capacity to carry back losses in excess of £200,000 to apportion the cap between their companies.
In respect of Income Tax, the current restrictions to carry back losses from a trade against general income will remain.
