HMRC refund for trading losses

A new ruling may mean firms that have made a loss can receive a refund from HMRC, offering cashflow benefits for those who have been hit hardest.

The new legislation applies to businesses of all sizes, however there is a £2m cap on losses carried back more than 1 year

In this article, Azets Partner and Head of Tax in Scotland Aileen Scott discusses the recent legislation that may help Scottish businesses.

Last year was a year that many will want to forget. With the arrival of COVID-19 into our lives and then various lockdowns being an essential part of containing the virus, many businesses have been hit hard.

Whilst the furlough scheme went a long way in assisting with ongoing staffing costs it did not counter the remaining fixed costs, such as rent, that businesses were still expected to pay whilst their turnover reduced, often dramatically.

A variety of government backed loan schemes were run alongside the furlough scheme but these will ultimately need to be repaid.

Fortunately, there is some more permanent help available. In the March 2021 Budget, the Chancellor announced that trading losses incurred by companies in accounting periods ending between 1 April 2020 and 31 March 2022 could be carried back for three years.

The new legislation applies to businesses of all sizes, however there is a £2m cap on losses carried back more than 1 year.

The result of carrying back a loss is that tax previously paid on profits of earlier years is refundable by HMRC. This will create a repayment of 19 per cent of the losses utilised in this way and provide a vital lifeline to companies in need of support.

There is usually a requirement that loss carry back claims are made in a company’s Corporation Tax return. However, the rules are relaxed slightly for claims of £200,000 or less as the legislation allows these to be claimed by writing to HMRC, outside of the tax return process, in a bid to speed up the availability of cash to struggling businesses.

Evidence supporting the value of the loss must of course be provided to HMRC, but this could take the form of management accounts or summaries taken from the accounting records.

As with all things in the tax world there are various quirks and loopholes to be aware of which emphasise the need for a trusted business advisor, therefore if your business has struggled with losses in these unprecedented times with the correct advice and guidance there may be a light at the end of the tunnel.

There will inevitably be a backlog of these claims for HMRC to process, so now is the time to act to secure your place in the queue and receive cash refunds to support your business.

Azets’ team of trusted business advisors are on hand to offer strategic tax planning and to ensure you remain compliant. To discuss your business and efficient tax planning, contact [email protected]