Introduction to this document

Claim for company loss relief under temporary extension

If your company makes a loss in an accounting period falling into financial year 2020 or 2021, it can take advantage of the temporary extension to the carry-back relief to relieve total profits from the previous three years.

Company losses

Under s.37 Corporation Tax Act 2010 if a company makes a trading loss in an accounting period, it may claim to deduct that loss from the company’s total profits, firstly in the same accounting period, then any unrelieved losses can be offset against the total profits in the preceding twelve-month period.

Under Finance Act 2021 companies can extend the trading loss carry back period from one year to three, with loss relief given in priority to later years first. This extension applies to trading losses arising in accounting periods ending between 1 April 2020 and 31 March 2022.

Using the extension is not the only choice, all other options, e.g. carry forward relief and group relief, remain available.

There is no cap on the amount of trading losses that may be carried back to offset total profits of the previous twelve months. However, there is a cap on the amount of loss relief that may be claimed against profits in years two and three of the carry-back claim. A £2 million cap applies to trading losses incurred in relevant accounting periods ending between 1 April 2020 and 31 March 2021, with a separate £2 million cap in place for trading losses incurred in relevant accounting periods ending between 1 April 2021 and 31 March 2022.

 

De minimis amounts

Generally, a claim should be made on the corporation tax return for the relevant period. However, if the loss is “de minimis”, a stand-alone claim can be made instead. This is useful as it means the claim can be submitted at the end of the accounting period before the corporation tax return is filed, accelerating relief.

In order to be de minimis, the potential loss must not exceed £200,000. Note that this is not the same as the actual loss claimed, so for example unclaimed capital allowances and losses surrendered to group members must be accounted for too.