If your unincorporated business made a loss during the COVID pandemic in 2020/21 or in 2021/22, you will want to set off those losses against profits and receive a tax refund as soon as possible.
Fortunately, the rules for pandemic losses allow you to do this.
A trading loss from 2020/21 or 2021/22 can be carried back to set against the profits of the same trade for up to three years. Losses from letting property don’t qualify for carry back, as they are treated as investment losses rather than from a trade.
When calculating the trading loss from the pandemic periods, you must include as business income any covid- related grants received, such as SEISS, furlough or business support grants. The SEISS grants are treated as business income of the tax year in which they are received, irrespective of the accounting period of the business.
Trading losses arising in 2021/22 will be set off in the following order:
- Total income of 2021/22 and/or 2020/21
- Trading profits of 2019/20
- Trading profits of 2018/19
For steps 2 and 3 the maximum amount of loss that can be set off against profits in those two years together is £2 million. There is no cap on the amount of loss that can be set off in step 1.
For a 2020/21 loss, the same principles apply but the years of set-off are all one year earlier.
Any losses not used by this extended carry-back are carried forward to set against profits of the same trade in future years.
We can help you make a claim to utilise your losses in the most efficient way.