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Changes in next month’s Budget to rules on tax losses could provide a significant lifeline for firms in danger of going under, according to KPMG.
The accountancy company has suggested four revamps of corporate tax policy by which the Chancellor could ease the financial burden on struggling businesses:
- Significantly increase the £50,000 limit – or remove the cap altogether – on the three-year carry-back of losses announced in November’s Pre-Budget Report.
- Temporarily extend payable tax credits in the form of ‘cash for tax losses’ – which already exist for activities such as research & development and environmentally beneficial plant and machinery – for other types of expenditure.
- Introduce rules that allow companies to ‘sell’ tax losses back to HMRC for cash.
- Allow groups to carry forward a single consolidated loss rather than insist that losses from one activity may only be set against the same activity.
‘An unrestricted, three-year carry-back would have the most effective and immediate impact for companies that have recently started to make losses,’ said Sue Bonney, head of tax at KPMG Europe.
‘However, we estimate that this could cost hundreds of millions of pounds and so may be too expensive an option.
‘If this is the case, then some of the other changes suggested here would go some way towards easing the pressure on UK businesses battling to survive.’
Ms Bonney went on to point out that larger tax losses can only be claimed in the future when or if a business returns to a profit-making position.
‘The problem with this is that… many companies can’t afford to wait to get the full tax benefit of current losses,’ she said. ‘At the moment, many businesses are desperate for cash, and being able to set today’s losses against future tax bills is of little use when battling for survival.
‘If priced correctly, an initiative whereby today’s losses could be sold back to the Treasury for cash could be a win-win for the Government and for struggling businesses.’
Ms Bonney added: ‘Losses being incurred now will be worth 28p in the pound in the future if they are offset against profits for a large business subject to UK corporation tax at 28%.
‘A business may be willing to surrender those losses for a cash payment of less than 28p in the pound today.
‘Getting the pricing right will be crucial. The Treasury needs to discount for the time value of money and the risk that a proportion of these losses would never be used anyway if some businesses fail.
‘Whereas the cash rebate would need to be attractive enough for companies to see it as worth surrendering future losses.’
