BUSINESS DEVELOPMENT 18 images JUNE 2020 ■ The governor of the Bank of England, Andrew Bailey, told the BBC in May that while a sharp recovery is expected, full normal economic activity is unlikely until next summer. He added that the furloughing scheme enables people to come back into the economy quickly, allowing a quicker recovery than seen in previous recessions. ■ Nominations for the 2020 NatWest Everywoman Awards are now open until 6 July. Free to enter, this year’s awards will take place under the theme: ‘Female entrepreneurship: keeping pace in a changing world’. The 2020 award categories can be viewed on the event website. everywoman-awards My business is making a loss because of the pandemic – how can this be offset against my tax bill? M any businesses are experiencing a downturn in profits due to the impact of Covid-19. If your profits actually turn into a loss there will be no tax to pay on your trading activity, but can the loss be used to your benefit and, if so, how? Let’s take a look at what options are available for using your trading losses to manage your current and future tax bill. The trading loss relief rules differ slightly depending on whether you’re a sole trader or a limited company, but are broadly similar. Sole trader If you operate as a sole trader whose tax year ends 5 April and you prepare your business results using the accruals basis, a trading loss can be used as follows. ■ Losses in the current tax year can be offset against all income, including savings income, reducing tax payable on other income. Be careful when using this option as offset of losses is all or nothing, meaning that you could waste other reliefs, such as your personal allowance. ■ You can carry losses back to the previous tax year and set them against the total income, including savings income. This may generate a repayment of the tax paid in the previous year. ■ You can carry the losses forward against profits from the same trade in a future tax year. This may be beneficial if tax was not paid in previous years. ■ If business ceases and a loss was made in the last 12 months of trading, the loss can be offset against trading profits of the previous three tax years, latest year first, to generate a tax repayment. ■ For new businesses, losses in the first four years of trading can be set against total income of the three tax years immediately before the loss year, earliest year first. The offset is against total income and so you may lose some personal allowance, but should generate a tax repayment. If you prepare your business results using the cash basis then you can only carry forward tax losses against future profits from the same trade. It may be possible to change to the accruals basis to get the best use of tax losses. Tax credits and Universal Credit may also be affected by losses in your business, but this is outside of the scope of this article. Single limited company Very similar options are available to limited companies for losses made in an accounting year. ■ Offset the losses in the current accounting year against total profits or carry them back to the previous accounting year and set off against total profits. There is no prescribed order of set off. ■ Carry the losses forward against profits from the same trade in a future accounting year. Losses arising after 31 March 2017 can be set off against total profits. ■ If the business ceases and the company makes a loss in the last 12 months of trading, the loss can be offset against trading profits of the previous three accounting years, latest year first. Early loss carry back claims Carrying losses back to a previous year is usually done when the tax return for the loss-making year is filed. However, due to the timing of Covid-19, it may be another 12 months before you are in a position to file a tax return for that year. It is possible to make an early claim to HMRC in writing if you can show that you have made a loss in the subsequent year. At present, a claim cannot be made until the tax being covered by the loss carried back falls due for payment. However, we are hopeful that HMRC might look to relax this condition as 2020 progresses. Expert advice on the business of running a garment decoration company Q&A Lesley Sutton is a director and tax specialist at Revell Ward in Huddersfield. The firm offers a range of accountancy services as well as advising on business planning and exit strategies.