Finance Bill Tracking Service 2009 | Budget 2009

BN13 EXTENSION OF TRADING LOSS CARRY BACK FOR BUSINESS

Who is likely to be affected?

1. All companies and unincorporated businesses making losses from carrying on trades, professions or vocations (referred to below as trading losses).

General description of the measure

2. Legislation will be introduced in Finance Bill 2009 to extend the ability of businesses to carry trading losses back against profits of earlier years to get a repayment of tax.

Operative date

3. The measure will have effect on and after 22 April 2009 for company accounting periods ending in the period 24 November 2008 to 23 November 2010 and for tax years 2008-09 and 2009-10 for unincorporated businesses.

Current law and proposed revisions

4. Under current rules, businesses already have a number of mechanisms to ensure tax from profitable years is repaid through set-off against losses that arise in subsequent periods.

5. Firstly, businesses can offset unlimited trading losses against profits in the preceding year and reclaim tax previously paid. Secondly, start-up unincorporated businesses in the early years of operation can carry trading losses back for three years. Thirdly, any business ceasing to trade can also carry trading losses back for three years. Lastly, ongoing trading losses can be offset against profits in future years.

6. Finance Bill 2009 will extend the period for which trading losses can be carried back against previous profits. This extension will apply to trading losses made by companies in accounting periods ending between 24 November 2008 and 23 November 2010 and to trading losses made in tax years 2008-09 and 2009-10 by unincorporated businesses.

7. Trade loss carry back will be extended from the current one year entitlement to a period of three years, with losses being carried back against later years first.

8. The amount of trading losses that can be carried back to the preceding year remains unlimited. After carry back to the preceding year, a maximum of £50,000 of unused losses will be available for carry back to the earlier two years. This £50,000 limit applies separately to the unused losses of each 12 month period or tax year within the duration of the extension. For companies this means a cap of £50,000 on the extended carry back of losses incurred in accounting periods ending in the 12 months to 23 November 2009 and a separate £50,000 cap on the extended carry-back of losses incurred in accounting periods ending in the 12 months to 23 November 2010. For unincorporated businesses, a separate £50,000 cap will apply to the extended carry-back of losses made in each of the tax years 2008-09 and 2009-10.

Further advice

9. A Technical Note with more details of how this measure would apply to trading losses made in company accounting periods ending between 24 November 2008 and 23 November 2009, and to trading losses made in the tax year 2008-09 for unincorporated businesses, was published on the HM Revenue & Customs website on 24 November 2008. The extension will apply in a similar way to trading losses made in company accounting periods ending between 24 November 2009 and 23 November 2010, and for trading losses made in tax year 2009-10 by unincorporated businesses.

10. If you have any questions about this change, please contact Simon Moulden on 020 7147 2629 (email: simon.moulden@hmrc.gsi.gov.uk) for incorporated businesses or Mark Anderson on 020 7147 2621 (email: mark.anderson@hmrc.gsi.gov.uk) for unincorporated businesses. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk