Updated January 2009
New rules announced in the Pre Budget report in December 2008 will allow businesses to carry back losses for up to three years rather than one. This is intended to help smaller businesses through the recession by providing more immediate relief for losses than would otherwise be available. (Losses carried back are restricted to £50,000)
This new carry back process is limited to one year only!
• For unincorporated, income tax businesses for the tax year 2008-09,and
• For companies accounting periods ending between 24 November 2008 and 23 November 2009.
This offers businesses an opportunity to reconsider their trading year end date. Our comments are split between income tax businesses and companies.
Unincorporated income tax businesses:
1. If your year end is not 31 March you may be advised to change the appropriate accounting period to 31 March 2009. This will allow you to recover the tax benefit of loss recovery or lower profits more quickly.
2. This change will also clear out a technical adjustment made when businesses first started up called overlap profits.
Summary - there may be a planning opportunity if any combination of the following apply to your business:
• Your actual profits in the year to 31 March 2009 are lower than the previous year
• You make a loss in the year to 31 March 2009
• You presently have an accounting date prior to the 31 March 2009
• Also watch out for pension relief in earlier years, it may be disallowed if losses are carried back and any tax relief will have to be repaid.
Companies:
The same basic principals apply to companies with the following exceptions.
• There are no overlap profits to consider
• The relevant period is not the tax year but accounting periods ending between 24 November 2008 and 23 November 2009.
In both cases H M Revenue & Customs will generally not accept a change of accounting date if a previous change has occurred in the last 5 years