BIM85022 - Types of relief - Extended loss relief - 2020-21 and 2021-22 losses
S64 Income Tax Act 2007 (ITA 2007), Sch 2 Finance Act 2021 (FA 2021)
Schedule 2 of the Finance Act 2021 introduced temporary rules for extending the relief available for trade losses made in tax years 2020-21 and 2021-22. These rules enable trade losses to be carried back against profits of the same trade for up to three years. These rules apply to professions or vocations in the same way that they apply to trades.
The extended trade loss relief rules can be utilised by a person who has made a loss in their trade for the tax year of 2020-21 or 2021-22 if they are:
- entitled to make a claim under S64 ITA 2007 to relieve some or all of the loss (the S64 amount) or they would be entitled to do so if they had income against which they could made such a claim, and
- either:
- the person makes a claim under S64 to utilise the loss (the S64 amount) against the general income of either the tax year of the loss or the preceding year, or both, or
- the persons total income for the loss-making year and the preceding year is Nil or there is no income within either of these years against which a valid S64 loss relief claim could have been made.
The time limit for making a claim to the extended relief for a trade loss in tax year 2021 to 2022 will be 31 January 2024.
The time limit for making a claim to the extended relief for a trade loss in tax year 2020 to 2021 will be 31 January 2023.
As the trade loss must be eligible for relief under S64 ITA 2007, any restrictions which apply to a loss relief claim under S64 ITA 2007 (e.g., uncommercial losses) also have effect for the purposes of the extended loss relief claims (see BIM85015).
The amount of the trade loss which can be relieved by these rules depends on whether a valid claim has been made under S64 ITA 2007 (the S64 claim):
- If a valid S64 claim has been made then the amount which can be carried back is the S64 amount less any amount used in the S64 claim (subject to a cap of £2m in each of the two earliest years);
- If no valid S64 claim has been made because the person has no income against which to make a S64 claim, the amount which can be carried back is the S64 amount (subject to a cap of £2m in each of the two earliest years).
When making a claim to carry back trade losses against the profits of the same trade, the losses must be used against the latest year first.
Example 1: Extended Loss Relief Claim Unaffected by £2m Cap
Jack has made a trading loss of £100,000 in the tax year 2021-22 (the loss-making year). He claims S64 ITA 2007 and FA 2021 relief by 31 January 2024.
Jack makes trade profits of £10,000 in 2020-21, £40,000 in 2019-20 and £60,000 in 2018-19. Jack does not have any other sources of taxable income.
| Tax Year | Trading Profits or Losses | Losses utilised | Statutory Reference of Loss Relief Claimed | Profits remaining chargeable to Tax | Notes |
|---|---|---|---|---|---|
| 2021-2022 | (£100,000) | NIL | N/A | NIL | (1) |
| 2020-2021 | £10,000 | £10,000 | S64 (2) (b) | NIL | (2) |
| 2019-2020 | £40,000 | £40,000 | Sch 2 FA 2021 | NIL | (3) |
| 2018-2019 | £60,000 | £50,000 | Sch 2 FA 2021 | £10,000 | (4) |
- Jack has no income or profits against which to relieve his losses of the same tax year (the loss-making year) so he is unable to make a loss relief claim under S64 (2) (a) ITA 2007.
- Jack has trade profits of £10,000 in 2010-21 which he can make a claim under S64 2(b) to relieve.
- Jack has trade profits of £40,000 in 2019-20 which he can make a claim under Sch 2 FA 2021 to relieve.
- Jack has trade profits of £60,000 in 2018-19. The maximum amount Jack can claim under Sch 2 FA 2021 is limited to the S64 amount less the amount of a valid S64 claim which is £90,000. As Jack has already claimed £40,000 under Sch 2 FA 2021 he can only relieve trade profits of £50,000.
The time limit for making a claim to the extended relief for a trade loss in tax year 2021 to 2022 will be 31 January 2024.
Example 2: Extended Loss Relief Claim Restricted by £2 million Cap:
Caroline makes a £6 million trading loss in tax year 2020-21 (the loss-making year). She claims FA 2021 relief by 31 January 2023.
Caroline has trade profits of £1.2m in 2019-20, £4m in 2018-19 and £1m in 2017-18. Caroline has no other sources of income.
| Tax year | Trading Profit or (Loss) | Losses utilised | Stutory Reference of Loss Relief Claimed | Profits remaining charegeable to tax | Notes |
|---|---|---|---|---|---|
| 2021-22 | (£6m) | Nil | N/A | Nil | (1) |
| 2020-21 | £3.2m | £3.2m | Sch 2 FA 2021 | Nil | (2) |
| 2019-20 | £4m | £2m | Sch 2 FA 2021 | £2m | (3) |
| 2018-19 | £3m | N/A | N/A | £3m | (4) |
- Caroline has no income or profits against which to relieve her losses of the same tax year (the loss-making year) so she is unable to make a loss relief claim under S64 (2) (a) ITA 2007.
- Caroline has trade profits of £3.2 million in 2020-21. She makes a claim under Sch 2 FA 2021 and is able to fully relieve these losses as the amount of profit is less than the S64 amount (£6m) and is unaffected by the £2m cap as the claim is not in relation to the earlier two years (2018-19 or 2019-20).
- Caroline has trade profits of £4m in 2019-20. She makes a claim under Sch 2 FA 2021 but can only claim relief for £2m as the amount she can claim is capped.
- Caroline has trade profits of £3m in 2018-19. She is unable to make a claim under Sch 2 FA 2021 as she has already reached the cap of £2m in the claim for 2019-20. Caroline must make a claim under Sch 2 FA 2021 for the latest year first and so she cannot choose to relieve profits in 2018-19 in preference to 2019-20.
The time limit for making a claim to the extended relief for a trade loss in tax year 2020 to 2021 will be 31 January 2023.