Corporate losses

If a company has made a loss in the current accounting period it will want to set-off that loss as soon as possible, in order to obtain a refund of corporation tax paid for the current period or the immediate prior period.

Any trading loss first needs to be set against any profits in the current period from other trades or from non-trading activities. Only after these current period profits have been covered may any surplus losses be carried back against profits of the same trade in the 12 months immediately prior to the current year. You need to be clear that the loss-making activities arise from the same trade as the earlier profitable activities.

HMRC has provided some guidance on the question of whether the nature of the trade may have changed during the coronavirus crisis, such that it amounts to a different trade (see BIM48000). It is worth reading this before applying to carry back a loss.

Generally, you can only submit a loss claim once the current accounting period has ended and the full extent of the profits and losses for that period are realised. HMRC will accept draft accounts for the completed current accounting period as evidence that a loss is available to carry back to the previous period, in order to support a loss claim.

In exceptional circumstances HMRC is prepared to make a repayment of corporation tax paid in respect of the previous accounting period, before the current period CT return and carry-back claim are submitted. Companies will be required to provide HMRC with evidence to support these claims, such as management accounts, forward-looking reports to the board of directors, and relevant public statements. HMRC will consider each such loss claim on a case-by-case basis (see CTM92090).

Where the company has made quarterly payments on account those amounts may be repaid, if a revised calculation for the current period shows an expected loss or much reduced profits (see CTM92650).

Changes in business activity because of coronavirus: BIM48000

Carry back of losses to prior year: CTM92090

Refund of quarterly CT payments: CTM92650

This information is taken from the weekly Tax Tips, published by the Tax Advice Network, for which you can subscribe at www.TaxAdviceNetwork.co.uk