As businesses across all industries find themselves in unparalleled times, it’s vital that day-to-day compliance and accounting processes are not falling by the wayside.
Quantifying the Impact of Coronavirus
As businesses across all industries find themselves in
unparalleled times, it’s vital that day-to-day compliance and accounting
processes are not falling by the wayside. Those who are effectively monitoring
their accounts and recording losses throughout this period will be in a better
position to get through this crisis.
One of the biggest lessons learnt from the 2008 financial
recession was that reliefs and grants shouldn’t stop once the initial hardship
phase is over. To keep the economy moving, reliefs will need to be extended as
much as possible and mitigating the tax payable by using losses wisely could
provide invaluable help to those with cash-flow difficulties.
Although the chancellor has not yet announced further
measures, we are sure that this will be the case in the months to come. If you
are going through a troubling time with your business right now, make sure you
have considered all reliefs and grants available to you as they are announced.
We’ve listed a range of reliefs available right now, which
might be applicable for you and your business. Some of these reliefs will
result in tax refunds so it’s important to consider these if you need them.
For businesses who are not in the first four years or last
12 months of trading (continuing trade), losses can be offset against current
annual income which can be carried back OR forward!
Sideways Loss Reliefs for Unincorporated Traders
Trading losses from the current trading year can be offset
against the other income of the current trading year or prior year in any
order. The relief available is currently capped at £50,000 or 25% of the total
income when above £200,000. Similarly, it is possible to carry your trading
losses forward against future profits of the same trade. However, we’d
recommend utilising the former as this will provide a quicker return for you
and your business.
Early Years or Termination of Trade for Unincorporated Traders
For businesses in the first four years of trading, losses are subtracted from the individual’s net income for the full trading year prior to the loss – this is capped at the same rate as the sideways loss relief.
If you are looking to terminate your business, then the
losses of the final 12 months can be carried back by three years.
Loss Relief for Corporations
Whilst much of the reliefs available for corporations are
actually very similar to those for unincorporated traders, there are some
important differences that we must discuss.
Businesses who do suffer trading losses in any accounting
period can offset the losses against total corporation tax profits in the
current period and any remaining balances can be carried back 12 months or
alternatively the loss can be carried forward to be offset against future
profits. There are restrictions on how the losses can apply to companies with
losses in excess of £5m.
Terminal Loss Relief
Corporations have two options available to them for terminal
Option 1 the loss in the final 12 months can be
carried back by three years.
Option 2 this relief only applies to periods after
the 1st April 2017 and is for when trading losses have been carried
forward to the period of cessation but not relieved, the losses can be offset
against the previous three years taxable income of the company.
Getting your Accounts in Order
The biggest lesson to learn to ensure that you can quantify
your losses as a direct result of Coronavirus is to make sure your accounts are
up to date! Keeping your accounts in check now could save you money in the
If you feel you have neglected your accounts and need some
help, please do not hesitate to get in touch with us – the Brightshire team
would be happy to help.
One of the biggest lessons learnt from the 2008 financial recession was that reliefs and grants shouldn’t stop once the initial hardship phase is over.”