Government is asked for timely relief on corporation tax because of COVID-19

20 Jan 2021

The Chartered Institute of Taxation (CIOT) is calling for timely relief for losses suffered by companies in the COVID pandemic period similar to that used in the past to keep more businesses afloat in an economic crisis.

The CIOT wants the Government to allow businesses to benefit from a three-year carry back of corporation tax losses arising during the pandemic.1 This would give a cash flow boost to businesses with a track record of paying tax that have been affected by the impact of COVID because they will be able to claim a refund of corporation tax paid in the previous three years.

The current position is that if a company or organisation is liable for corporation tax and makes a loss from trading, they can set that loss against profits in the previous 12-month accounting period, reducing their corporation tax bill for that period (and if the tax has already been paid, earning a refund). The CIOT is proposing that this ‘carry back period’ be extended to three years as a short-term measure because of the pandemic.

The CIOT makes the call in a Budget submission. In the submission the Institute also calls for a relaxation of the rules around the recently introduced 50 per cent loss relief restrictions.2 This would allow all companies to get full relief for losses arising because of the pandemic.

Adrian Rudd, Chair of the CIOT’s Corporate Taxes Committee, said:

“A three year carry back of business tax losses arising over the period of the pandemic would give businesses with a track record of making profits and paying tax, but which have suffered over the last year, a much-needed cash injection.

“There is precedent for such a measure during previous times of severe economic downturns. Similar measures were implemented in the recession around 1990 and, again (though on a more limited basis), in 2009 in response to the financial crash of 2008.”

The additional flexibility could be focussed on losses arising because of the pandemic by limiting the extended carry back to trading losses arising in accounting periods overlapping, say, the year from 1 March 2020.

Adrian Rudd continued: 

“Permitting an extended carry back of losses would be a measure focussed on businesses with a recent track record of profitability. We accept that that is not the same as future viability, but it is one of the best proxies available.

“The cost of the carry back proposal would reverse out when businesses start to make a profit in the future, as they will begin to pay tax again sooner without the losses that they have already carried back. We would expect the immediate cost of the loss relief to be less than the costs which would arise for the economy if businesses fail.”

Businesses that have done well in the pandemic would not benefit from this measure.

Among other detailed suggestions, the CIOT is calling on the Government to set the level of the Annual Investment Allowance (AIA) on a long-term basis and has suggested £1million per annum.

Adrian Rudd said:

“This will create certainty for businesses contemplating investment projects and avoid arbitrary cliff edges around dates, sometimes announced late in the day, that have been a too common occurrence over recent years due to fluctuations in the level of the AIA. It sends the message that the Government recognises the overall benefit of capital expenditure and investment by businesses.

“Most businesses cite certainty as more important than the precise amount of relief available. Putting the AIA on a more permanent footing would boost investor and business confidence at relatively modest cost to the Exchequer.”


1. The CIOT’s Budget 2021 Representations: changes to the tax rules effecting companies is here.

The CIOT has made other Budget representations:

The CIOT has made a Budget representation on taxation of property income – link.

The CIOT has made a Budget representation on Capital Gains Tax – link.

2. Companies and groups of companies have a total annual allowance of £5m of carried forward trading losses which can be relieved against total profits. Groups can allocate the allowance between the group companies as they like. If the brought forward trading losses arising from 1 April 2017 onwards are over £5m, only 50 per cent of the excess loss over £5m can be relieved in this way. A similar restriction in respect of capital losses was introduced in April 2020