Chris Sanger, EY’s Head of Tax Policy, comments on the Budget:
“The Chancellor extended the loss carry back rules, so that companies making losses today can choose to set those losses against tax paid in the last three years. This can provide a valuable cash flow benefit, with the limit of £2m of losses giving rise to £380,000 of tax repayments.
“This will be of benefit for those who need the money now and indeed is more generous than that introduced by Alistair Darling in the global financial crisis, which was limited to £50,000 of losses.
“However, those larger businesses that will not be profitable before 2023 may be better off waiting to offset those losses against profits in 2023 and beyond as this would instead save an extra £120,000 given the increase in the tax rate to 25%. This represents an implicit interest rate of almost 15% per annum, so other forms of lending may be more attractive than claiming this relief.
“Today’s relief responds to the calls of the Treasury Select Committee and others and will be helpful to those previously profitable businesses that have been severely hit by COVID-19, providing a cash boost at the time it is most needed. For smaller businesses exempt from the rate rise this is a clear benefit but larger businesses will need to decide whether to take the cash now or bet on having higher taxed profits in the future.”