Income Tax & Corporation Tax Loss Relief

Corporation Tax

Revenue have introduced a temporary acceleration of Corporation Tax loss relief for companies whereby they can estimate trading losses for a certain accounting period affected by Covid-19 restrictions to provide cash-flow support to previously profitable companies who have now become loss making in the interim.

These companies can make an interim claim to carry back 50% of the losses against taxable profits in the preceding accounting period on an accelerated basis. The losses which are applicable for this provision must be incurred in the specified accounting period which is any accounting period of a company carrying on a trade which includes some or all of the period commencing on 1 March 2020 and ending 31 December 2020.

A claim for such losses can only be made after the end of the accounting period in which the loss is incurred and following the filing of the tax return for that period. The carry back of such losses follow the same treatment as normal carry back losses and must follow the normal priority rules as was previously applied.

Income Tax

Revenue have also introduced measures to assist Self-Employed Income Earners for losses incurred during the relevant period which is considered to be between 1 January 2020 and 31 December 2020, on any trade or professional income earned as a sole trader or as part of a partnership.

Where such applies, the individual can apply to Revenue to have any part of the losses incurred during this timeframe, to be set off against the profits of the same trade or profession earned during the 2019 tax year.

Revenue have also provided that where there are unused specified allowances for wear & tear on plant and machinery, writing-down allowances for industrial buildings and allowances for farm buildings and structures in the relevant period, the individual can request that such is carried back and set against the profits of the same trade or profession in 2019. Where only part of the specified allowances claimed in a year of assessment are in respect of the relevant period then an apportionment will be required. The provisions also give an option to farmers who incur a loss in 2020 to step out of income averaging for the tax year 2020, notwithstanding that the farmer may have already stepped out of this in one of the last preceding 4 tax years.

The full details of Revenue’s formal guidance on the Income Tax and Corporation Tax Loss relief can be found here

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Return to The Tax Issue - Autumn / Winter 2020