How can you generate a corporation tax repayment through loss carry back?

What is the accelerated loss carry back?  

If a company makes a loss in their current year, they can carry these losses back to previous profit-making year(s) to generate a repayment of the corporation tax previously paid.  

Normally this claim is made when the final tax returns for the period are filed. However, what few people take advantage of is the ability to claim this earlier; claims can be made for a repayment of excess corporation tax from the prior year before the current year return is even filed.  

Doing this claim could see your company receive a corporation tax repayment many months ahead of the normal timeline, without having to prepare your tax return further in advance than anticipated. For example, for a company that files this claim immediately after the end of the loss-making period, they could anticipate their repayment up to a year earlier than if waited to make the claim when they submit their final tax returns close to the filing deadline. 

What do you need to consider? 

1. All possible loss relief claims should be considered before this action is decided. Other reliefs, for example group relief or the generation of repayable R&D tax credits, may be available to your company and it is possible that they make more commercial sense in your specific circumstances. 
2. You should be certain that the current year losses will cover the profits of the previous tax year, to the extent that you are claiming a repayment of corporation tax. For this reason, it may be best to wait until the current period has ended before filing this claim.
3. From April 2023, the main rate of Corporation Tax will rise from 19% to 25%. Companies should consider whether they predict profits in the near future. If they do, an assessment of the merits of carrying forward the losses for relief (subject to any potential restriction) against profits that would be taxed at the higher rate at a later date, compared to a potentially quicker repayment from relief against earlier profits taxed at the lower rate. 

What businesses are eligible for the accelerated loss carry back relief? 

This can be claimed by companies that: 

• have started to make a loss in their current year, whereas the prior year was profit-making, 
• have evidence that they have paid too much Corporation Tax, and 

• have not yet finalised and filed their tax returns for the loss-making year.

At what point can a claim be made?  

Whilst the majority of these claims are filed after the end of the current period, it is possible to make this claim before the current period ends, if exceptional circumstances are proven. These would be situations where it can be confidently predicted that a loss will definitely be incurred in the current year.  

One timing restriction to bear in mind is the limit on how early this claim can be made. In most cases, the claim can only be filed if at least nine months has passed since the end of the profit-making period. 

How does it work and how can you claim? 

The claim can be made on a stand-alone basis (not in a return) and should cover the following areas: 

• The amount of tax the Company believes it has overpaid for the prior period. 
• Evidence showing that a loss has or will be made. In most cases this would be Management Accounts showing the appropriate loss.  

• Any additional supporting analysis that the Company can show HMRC to give them sufficient comfort.  

HMRC reviews these claims on a case-by-case basis and, if approved, the overpaid Corporation Tax will be repaid. 

Get in touch 

If you are anticipating making a loss in the current period due to a downturn in your business and you paid corporation tax in the previous period please get in touch with us to discuss making a claim.   

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