Carry tax loss forward to save in the long run
Practices have been warned to be cautious about using a 2021 Budget ruling allowing a one-year carry-back for trading losses to be extended to three years.
This meant businesses with losses during Covid-19 could get money back for tax paid in that earlier three-year period.
But accountants Humphrey and Co say with corporation tax rising to 25% from next April for profits over £250,000, doctors may benefit by carrying the loss forward.
Mike Bryan
It said the marginal rate was 26.5% for profits between £50,000 and £250,000 a year. So there was a trade-off between a tax refund now and possible bigger future tax saving.
A company’s loss-making accounting period must end between 1 April 2020 and 31 March 2022 for the enhanced carry back – 2020-21 or 2021-22 for unincorporated businesses.
Partner Mike Bryan advised doctors to take professional advice. He said it was relevant for any sole trader or limited company that had made a loss.
‘If cash flow is the main issue now, carry it back. But if you can survive, then you may want to carry it forward, as you may get more tax relief next year due to impending tax increases.’