Businesses can offset coronavirus-driven losses in order to cut tax bill

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Businesses suffering lower revenues due to the coronavirus crisis may be able to offset their expected losses for this year against last year’s taxable profits in order to help reduce their tax bill.

That is good news for many struggling UK SMEs in the current climate, from accountants and business advisors, Moore.

Income for many companies has been severely impacted by the coronavirus outbreak and it is therefore essential that businesses find ways to improve cashflow in the coming months, if they are to survive.

Moore adds, many SME companies will be needing to make corporation tax payments in the forthcoming months, that are based on previous year’s taxable profits. However, if the business is expecting to make a significant loss in the current year, one option would be to consider offsetting these losses as soon as possible in order to reduce tax liabilities and to help with cashflow.

This is one option that a business may wish to look at, as an alternative to entering into an agreement with HMRC to delay their tax payments, known as a Time to Pay agreement. There have been substantial logistical issues in arranging Time to Pay agreements as HMRC has been swamped by enquiries.

Moore explains SME companies will need to pay their Corporation Tax liability within nine months and one day after the end of their annual accounting period. For example, a business with a year end of 31 December 2019, will need to pay their tax bill by 1 October 2020.

Moore adds, if the company was able by September 2020, to have a reasonable estimate of their 2020 annual taxable losses, then this information could be included on the 2019 tax return, thereby using the losses as soon as possible to reduce the tax due in October 2020. When the actual losses have been established, an amended return can be submitted. One note of caution would be if the estimated losses are too low, then the additional tax would need to be paid, and HMRC may charge interest on the balance.

Lucienne Parry, Partner at Moore, says: “Right now, one of the key items that matters for many businesses is preserving cash. Reducing your corporation tax payments is one way to do that.”

“For those businesses which have prepared management accounts and have a good understanding of their financial position, this can be a really simple way to improve cashflow. We are receiving more and more queries from clients about this.”

“It is crucial for businesses to be aware of all the different options available to help strengthen their financial position during this coronavirus crisis. Offsetting losses, Time to Pay agreements, forex trading platforms and applications for emergency government loans should all be considered.”