The Chartered Institute of Taxation (CIOT) has called for the government to allow businesses to benefit from a three-year carry back of corporation tax losses arising during the pandemic.

This would give a “cash flow boost to businesses” with a track record of paying tax that have been affected by the impact of COVID-19, the CIOT suggested, because they would be able to claim a refund of corporation tax paid in the previous three years.

Currently, if a company or organisation is liable for corporation tax and makes a loss from trading, they can set that loss against profits in the previous 12-month accounting period, reducing their corporation tax bill for that period – and if the tax has already been paid, earning a refund.

The CIOT has proposed that this carry back period be extended to three years as a short-term measure because of the coronavirus pandemic.

Chair of the CIOT’s Corporate Taxes Committee, Adrian Rudd, highlighted that similar measures were implemented in the recession around 1990 as well in 2009 – on a more limited basis – in response to the financial crash of 2008.

“The additional flexibility could be focused on losses arising because of the pandemic by
limiting the extended carry back to trading losses arising in accounting periods overlapping, say, the year from 1 March 2020,” Rudd said.

“Permitting an extended carry back of losses would be a measure focussed on businesses with a recent track record of profitability. We accept that that is not the same as future viability, but it is one of the best proxies available.

“The cost of the carry back proposal would reverse out when businesses start to make a profit in the future, as they will begin to pay tax again sooner without the losses that they have already carried back. We would expect the immediate cost of the loss relief to be less than the costs which would arise for the economy if businesses fail.”

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