Losses Made – Taxed Saved

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April 1, 2020

As we struggle to come out of the UK recession, there will be an unprecedented amount of businesses seeing red when they come to draw their year-end accounts.  This for some will be the first time in their recent business history due to the positive economic climate seen before the recession started to bite in 2008.

Small business owners are cost-conscious and astute when it comes to profitability.  Yet the sudden change and the ferocity of the recession have caught even the best out.

The climate suggests cash is king and for the time being Mr Brown has temporally extended relief so that businesses facing a loss can claim back tax paid in earlier years.  The claim for one year has now been extended to three years.  This facility applies to limited companies with losses in accounting periods ending between 24th November 2008 and 23rd November 2010.  For sole traders and partnerships, it applies, in most cases, to periods ending between 6th April 2008 and 5th April 2010.

Naturally, there is an order of events, you must claim in the year the losses arise against other income, only then it can be taken back to the preceding year and then up to £50,000 of any balance remaining to the two remaining years.

This is a welcome relief despite the cap of £50,000 and if you have losses exceeding the cap or expect losses to exceed the cap in the next financial year it would be wise to seek professional help as there are ways to make this cap go a whole lot further.  Careful planning would be needed.

The main issue facing the business owners is whether to hold the losses for future years to set off against future profits or utilise the losses and carry them back.  If indeed you expect profits in future years to take you into the higher rate tax bands then preserving your losses will yield higher tax savings.

This area remains complex and in many instances, it is highly dependant on personal circumstances.  This is not a shoe that fits all and ultimately for many of the hard-working small business owners cash will ultimately be king.

This article is written for information purposes only and in no way does it constitute advice on your personal circumstances.

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