We get it, tax is not a hugely exciting thought but it is definitely an important one! We thrive on assisting businesses with their tax needs whether it is registering with HMRC, filing your latest return or simply looking for up to date guidance and advice – we’ve got it covered.
Limited companies that pay Corporation Tax will pay an amount up front based on forecasted profits for the following year. However, amongst the ongoing worry and anxiety of COVID-19 there is a glimmer of hope that any tax paid against profits that weren’t received due to business closures, can now be refunded.
Not only that – and stay with us here – as part of the Chancellor’s Budget last March, he announced an extension to the loss relief rules, so businesses are now able to reclaim losses made during COVID-19 from Corporation Tax they have paid in the last three years – rather than the usual one year.
Pretty good right?
More about the new rules
Normally in a loss-making year, a company can carry it forward that loss to use it against other profits in the coming year. This effectively acts as a buffer to prevent businesses from boom and bust tax years, but it also means any losses aren’t felt too hard if a company’s balance sheet isn’t looking too healthy for a short period of time.
However, the government has decided to temporarily extend the opportunity for companies to carry back losses for up to three years. Even better, a refund claim can be made for corporation tax already paid. Also, the loss relief is available for two years.
Who are these new rules designed for?
These new rules are aimed at limited companies, but they apply to unincorporated businesses too. For limited companies, the three-year extension applies to trading losses occurring in accounting periods which end between 1st April 2020 and 31st March 2022.
For unincorporated businesses, the extension applies to entities such as partnerships or sole traders for trading losses occurring in the 2020-21 and 2022.
What’s the catch?
There isn’t one, honestly! It is genuine financial support from the Government. There’s no doubt the effects of COVID-19 have been felt far and wide and throughout all sectors of UK business. Even with the assistance of the furlough scheme, grants and other government aid during this period, it has still meant that companies that have been profitable for a number of years, but have now made a loss and are looking for further support.
As long as any losses apply during accounting periods ending at any time before 31st March 2021 and year ending 31st March 2022, then you can make a claim – however, for each of these years of claim, the loss carry back is capped at £2 million.
The only minor issue is that claims will not be processed by HMRC until Royal Assent is given to the Finance Bill which is expected to take place in July 2021. But, please don’t think that means you shouldn’t claim. A lot of businesses have not yet filed their tax returns covering the full lockdown period due to the fact they have not been able to trade. If this applies to you, then you will also likely be affected by the losses – making it even more important for you to file your return and get going with your refund application. You might also want to consider getting ahead of the game, as there could be a rush as more companies all try to do the same thing at once.
How to claim
Claims amounting to less than £200,000 can be made before the submission of the Corporation Tax return. Claims of more than £200,000 must be made by submitting a Corporation Tax return and accounts for the loss-making period, as this will speed up claims for loss relief and therefore an earlier repayment – but the loss must be supported by management accounts.
It is important to note that it is down to the company to put forward a claim – any refunds due will not be automatically issued. This is because it’s not technically owed, so HMRC need to be informed by the company.
If you think your business might be eligible for this option and you need assistance to obtain your refund, feel free to contact us at Abbeygate Accountancy and let us set you up.