The Chartered Institute of Taxation has called for a three-year carryback of trading losses suffered by companies in the coronavirus pandemic period.
Timely relief for losses would give a cash flow boost to businesses with a track record of paying corporation tax, the CIOT said in a January 20 release. The current rules generally allow companies to set trading losses against profits arising in the previous 12-month accounting period.
Adrian Rudd, chair of the CIOT’s corporate taxes committee, noted that similar measures were implemented in response to the 1990 recession and, on a more limited basis, the financial crash of 2008. (Prior coverage of the 1991 and 2009 budgets.) “Permitting an extended carryback of losses would be a measure focused 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,” he said.
“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,” Rudd added.
“We also suggest that the government should give consideration to relaxing the rules around the 50 percent restriction on loss relief for companies in respect of both income losses and capital losses, so that all companies can fully utilize losses arising as a result of the detrimental effect of the pandemic,” the CIOT said in a budget representation.
The CIOT also suggested setting the annual investment allowance limit at £1 million on a more permanent basis. “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 [allowance]. It sends the message that the government recognizes the overall benefit of capital expenditure and investment by businesses,” Rudd said.
The CIOT called for clarity regarding changes in the ownership of a business. HM Revenue & Customs “should clarify what will constitute a major change in the nature of conduct of a trade carried on by a company which may otherwise restrict the availability of losses to businesses which change ownership to reflect the circumstances that have arisen as a result of COVID-19,” it said.
“We envisage that there could be a significant amount of both changes in the nature or conduct of trades and changes in ownership as a result of the COVID-19 pandemic, as businesses work out new ways of operating or diversify and/or merge in order to remain viable,” the CIOT added.
The CIOT’s other proposals included the repeal of “U.K. to U.K.” transfer pricing rules. “No doubt the government is considering the impact of the U.K. leaving the EU, and the end of the transition period, on our tax code,” the CIOT said, adding that the rules “were introduced in response to decisions of the European Court of Justice, although subsequently doubt was cast as to the need for them even before Brexit.”
The CIOT said it would be interested to know whether HMRC’s information on the operation of the rules in practice “indicates whether retaining them is worthwhile or required for the integrity of the tax system and if so, what is the reason for that.” If not, the CIOT would welcome their repeal to simplify the corporation tax code, it added.
The CIOT also published on January 18 budget representations on the taxation of property income and capital gains tax. It recommended consultation on the basis period to be used for the taxation of property income received by individuals for the purposes of Making Tax Digital and a broad consultation on “the future role and shape” of capital gains tax in the tax system.
The Tax Faculty of the Institute of Chartered Accountants in England and Wales said the government should focus on “delivering existing plans and COVID support packages” rather than announcing short-term changes to the tax system, given the impact of the pandemic and the United Kingdom's departure from the EU.
The faculty’s budget submission suggests that the only areas in which there should be changes that have not been announced previously are “coronavirus support for businesses, measures to enable frictionless cross-border trade, and simplifications to the tax system to reduce Making Tax Digital for income tax self-assessment reporting burdens for businesses and property landlords from April 2023,” it noted in a January 19 briefing.