As the government announced an emergency extension to the ‘loss carry back’ rules in the Budget earlier this month, thousands of small business owners who have lost money, due to the coronavirus pandemic, can claim more than £1bn in tax rebates.
Businesses now have the option to claim back profit and income taxes paid over the last three years. 130,000 incorporated businesses are set benefit from the extension. This can include more than 500 sole traders and partnerships, along with de facto self-employed company directors with no employees.
Before the extension was announced, losses could only be carried back one year to offset previous tax bills. The extension from one year to three years provides a potential lifeline for those businesses who have been worst hit by the pandemic and facing collapse as a result.
This relief differs slightly from other reliefs, which cut future tax bills. This option gives businesses the chance to carry losses back and get refunds on tax that has already been paid to HMRC. The government has estimated a pay out of £840m in tax refunds for this tax year and a further £205m for the 2021/22 tax year.
This news has been welcomed by many as a number of self-employed workers have struggled throughout the past 12 months, with reports suggesting that nearly half of self-employed workers were planning to quit freelancing, due to the pressures of the pandemic.