Early Loss Carry Back Claims

25 March 2020

The outbreak of Covid-19 has caused a shock to the global economy and presented companies with a unique set of challenges. Chief amongst them is how to manage cash flow within an economic environment that has momentarily stalled.

Where companies are adversely impacted by the pandemic, they face the reality of watching a formerly profitable operation being plunged into a loss making position. Where this is the case, companies will be able to seek relief for these losses against profits made in a previous profit making period and reclaim the associated corporation tax that was paid over to HMRC.

The problem for many companies is that, under normal circumstances, loss carry-back relief is usually claimed when the tax return for the loss making period is submitted. For many, this will not be for some considerable time. Therefore, companies may wish to consider the little known about submission of an early loss carry back claim in order to accelerate the relief and secure a repayment of corporation tax. Our team have worked on a number of successful claims of this type, both in their current roles and their former roles at HMRC.

Making an early claim

Where the corporation tax return for the loss making period has not yet been submitted, there is no statutory provision that allows companies to make an early claim to carry back loss relief. Therefore companies wishing to make an early claim will need to approach HMRC seeking clearance to give effect to their claim by amending the tax return for the earlier profit making period. Any submission to HMRC requesting the early carry back of losses will need sufficient evidence that losses will be included in the company tax return for the loss making period when it is eventually submitted. Providing an acceptable form of evidence is therefore critical to the timely success of a repayment.

Which companies could benefit?

The standard corporation tax rules allow a loss to be carried back for a period of twelve months (they allow a loss created by a company which is ceasing its trade to be carried back for three years under the ‘terminal loss relief’ provisions).

As such, companies that could benefit from an early loss carry back claim are those who:

  • Have recently concluded an accounting period in which a loss was made, or, are currently in an accounting period where it is clear that a loss will be made, and
  • Made a profit in the preceding accounting period.

If you require any assistance compiling and submitting an early loss carry back claim to HMRC in order to try and aide cash flow, please feel free to get in touch with Stefan Fielding or our BDO contacts who will be happy to assist.

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