The government has announced an extension of the period in which the loss of the trade can be carried back to receive tax relief. The changes apply for both corporation tax paid by public and private companies as well as income tax for unincorporated businesses

The changes will be crucial for the businesses with significant profit pre-pandemic but have been severely affected and incurred significant losses ever since. The extension will provide essential cash flow in the form of repayments for tax paid for two additional years.

Companies paying corporation tax

The extension applies to trading losses between the 1st of April 2020 and 31 of March 2022. The amount of trading losses that can be carried back to the preceding year is unlimited for the companies.

 After the carry back to the preceding year the maximum of £2m of unused losses will be available for the companies to carry back against profits to the earlier 2 years. 

£2m limit applies separately to the unused losses of each 12 month period within the duration of the proposed extension.

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Businesses paying Income tax

The amount of losses arising from the trade or profession that can be carried back to set against income of the preceding year remains unchanged. 

The new rules allow unused losses to be carried back further two years against the profits carried by the same activity. £2m cap applies to extended carry back of losses in each tax year.

Impact of the change

This measure is set to provide a positive impact for businesses by temporarily extending the period of which they might carry trading losses back against profits of earlier years in order to get repayments of tax paid to them.

It will provide necessary help for businesses impacted by COVID-19. It is estimated that over 130.000 companies and 500 unincorporated businesses will benefit from the change.

In order to see the detailed guidance about this extension visit government website here

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