As a measure to help businesses during the recession, the Finance Bill 2009 allows trading losses for businesses to be carried back up to a maximum of three years. To qualify the losses must be suffered:
For limited companies, during trading periods ending in the two year period to 23 November 2010, and
For unincorporated, self-assessed businesses, during the tax years 2008 -09 and 2009 -10.
Losses have to be carried back to the latest year first. For example if the loss is incurred in the year to 31 March 2010 the first carry back is to the year ending 31 March 2009 (there is no restriction on the amount of losses carried back to this year). If losses are still available after this first set off they can be carried back a further two years. (In our example to the year ending 31 March 2008 and then the year ending 31 March 2007).
However the carry back to these further two years is capped at £50,000 per year against total profits for companies. For unincorporated businesses the carry back to the two earlier years is also capped at £50,000 per year but only against profits from the same trade.
If the loss carried back reduces taxable profits in any of the earlier years tax refunds should be forthcoming.
Take note of the following factors:
Tax losses can be enhanced by claims for equipment purchases, and
Self-employed tax payers can lose the benefit of their individual (personal) tax allowances and this needs taking into account when making loss relief claims.