Baxter&Co - 2021 Spring Business Support Guide

5 Where cars are leased rather than bought, the leasing cost in the accountsis generally allowable for tax, subject to a 15% disallowance for high emission cars. For leases entered into from April 2021, many more cars will therefore suffer this disallowance. If you are unsure how these tax changesaffect your business and its employees,please get in touch. Trading losses - sole traders With the economy hit hard by COVID-19, many unincorporated businesses will make losses this year, perhaps for the first time. A sole trader has great flexibility in how losses can be used and these rules also extend to membersof partnerships and LLPs, subject to restrictions for non-active partners and limited partners. For losses incurred in the first four tax years of a new unincorporated business, there is the option to carry back the loss against total income of the three preceding years. This can potentially lead to large repayments of tax previously paid at the higher or top rates, if the business owner was previously in high-earning employment. Otherwise, there is normally only a one-year carry-back available against total income. However, the Chancellor has introduced a temporary extension to this one-year loss carry-back, such that trade losses can be carriedback a further two years, but against trade profits only. This will produce repayments of tax where a currently loss-making business was previouslyprofitable. This extended carry-back can be used for losses of the tax years 2020/21and 2021/22. For each year, there is a cap on the amount of loss that can use the extended carry-back, but as this is set at £2m it will not impact most businesses. There are other options for losses, including setting them against Capital Gains in some circumstances, special rules on cessation of trade and carryinga loss forward against future trading profits. There are lots of detailed rules for each of these options and different dates by which claims must be made. If your business is currently making losses, make sure you discuss with us the optimum way of using them, so that you can maximise your potential tax repayments. This will aid your cash flowin these difficult times . Trading losses – companies Unlike an unincorporated business, losses of a company cannot be used against the owner’s personal income or Capital Gains. Instead, they are stuck within the company, unless the company is part of a group, when it may be possible for othergroup companies to use them instead. Company trading losses that have been incurred since 1 April 2017 can be carried forward to set against total profits. There is also a one-year carry-back option available, again against total profits. To help companies generate repayments of tax that and aid their cash flow, the loss carry-back has beentemporarily extended to 3 years. Unlike the equivalent rule for unincorporated businesses, the extended carry-back is not restricted to trading profits, which will be useful, for example, where a company has both trading and rental income in earlier years. The extended loss carry-back applies for accounting periods ending in the 12 months from 1 April 2020 and in the 12 months from 1 April 2021. For each of these accounting periods, the maximum loss that can be subjectto the extended carry-back is £2m.