Temporary extension of the loss relief rules

Finance Act 2021 introduced extended loss carry-back provisions for businesses subject to either income or corporation tax. Broadly this allows for losses incurred in 2020-21 and 2021-22 to be carried back up to three years rather than the usual one year.

A detailed look at the legislation shows that where an unincorporated business has losses in both years there is flexibility as to which loss is used first. This may present opportunities to maximise the amount of profits which can be offset using the new temporary extension of the loss relief rules.

Priority rules

Under the new rules losses have to be carried back in order with profits of more recent years offset before those of earlier years. However for unincorporated businesses at least there is no priority rule to say that an earlier loss has to be carried back before...