Trading Losses – Extended Loss Carry-back for Businesses Print

In the Budget on 3 March 2021, the Chancellor announced a temporary extension to the loss carry-back provisions for companies and unincorporated businesses. This booklet discusses the new relief for unincorporated businesses.

For the tax years 2020/21 and 2021/22 it is proposed that unrelieved trading losses will be able to be carried back and set against the profits of the same trade for three years before the tax year of the loss.

The amount of the loss that can be carried back under these new provisions is to be capped at £2m for each of the years 2020/21 and 2021/22 where the loss is being carried back more than 1 year. In addition, to be able to access this relief a claim must first be made under Section 64 ITA 2007 to offset the losses against general income of the current year, the previous year or both, under the existing loss relief provisions. In the situation where the individual has no income against which to set the Section 64 claim for either of the 2 previous years, then a claim may still be made under the new provisions.

The losses are carried back and set against the profits of the most recent year before earlier years.

Example:

For the years 2017/18 to 2020/21 David has trading profits/losses and other income as follows:

  • 2017/18 Trading profit £300,000; other income £50,000
  • 2018/19 Trading profit £400,000; other income £50,000
  • 2019/20 Trading profit £100,000; other income £40,000
  • 2020/21 Trading loss £700,000; other income £60,000

David can make a Section 64 claim to offset £90,000 of the loss against his general income of the year of loss 2020/21 (capped at £50,000) and 2019/20 (£40,000).

Under the new carry-back provisions he can set the loss against the prior years trading income as follows:

  • 2019/20 £100,000
  • 2018/19 £400,000
  • 2017/18 £110,000 (700,000 – (50,000+40,000+400,000+100,000)

If David makes a further trading loss in 2021/22, the only loss claim available to him in this year will be under Section 64 to set the losses against his general income of the years 2021/22, and 2019/20. This is because the trading profits of the years 2018/19, 2019/20 have already been fully offset by the trading losses in 2020/21.

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