A new temporary relief to provide cash flow support, through the tax system, for previously profitable companies which now in 2020, due to the impacts of COVID-19, are loss making.
Why claim this new relief
Companies may now use up to 50% of their estimated losses for their 2020 accounting period against 2019 company profits. This will facilitate an early refund of some or all of the 2019 corporation tax paid.
It is not necessary to wait until the 2020 corporation tax return is filed with Revenue, companies can make an ‘interim claim’ for 50% of the estimated 2020 losses.
An ‘interim claim’ can be made 4 months after the beginning of the specified accounting period, and anytime up to 5 months after the end of that period.
The balance of losses for 2020 will be available in the normal way, that is, claimed on the 2020 corporation tax return.
This new relief is available now, subject to satisfying certain conditions.
What are the conditions
Companies that incur losses in their ‘specified accounting period’ being an accounting period which includes some part or all of the period 1 March 2020 to 31 December 2020, may make an ‘interim claim’. This ‘interim claim’ can be carried back and set off against the profits in 2019.
A best estimate and reasonable approach is required when estimating the losses. Supporting documents and records must be maintained for the purposes of determining whether such losses were computed in a reasonable manner and to the best of the company’s knowledge.
The company must declare that it has incurred or may reasonably expect to incur estimated losses. Such declaration must be submitted to Revenue.
The company must also be fully tax compliant.
Reviewing the claim
It may be difficult to accurately project the expected amount of losses. Allowing for this, an ‘interim claim’ may be amended. The amount of the claim can be increased if 50% of the estimated amount of losses is greater than the original claim.
If it becomes known that the ‘interim claim’ was overestimated, then the ‘interim claim’ should be reduced by the excess amount without delay. Interest can be applied to the excess amount claimed.
The company’s financial position throughout the specified period should be monitored and supporting documents kept to ensure that an ‘interim claim’ can be revised up or down without unreasonable delay.
How to claim
Guidance from Revenue tells us that a temporary procedure is in place to make a claim through Revenue Online Service (ROS). Essentially, the corporation tax return for the preceding accounting period i.e. the 2019 Form CT1, will be amended by entering 50% of the estimated trading losses for 2020 in the one of the existing fields, as relevant. For most, this will mean that the 2019 Form CT1 must be filed first.
For certain trades, known as excepted trades, a claim may be made through ROS either in, or by amending, the 2019 Form CT1.
This new temporary corporation tax loss relief was first announced as part of the government’s July Jobs Stimulus Package. It is legislated for in the Financial Provisions (Covid-19) (No. 2) Act 2020. Companies may be able to claim the relief now.
Hear from Grant Thornton on this new corporation tax loss relief, as well as information on other corporation tax measures introduced as part of the July Jobs Stimulus, by joining our webinar, next Thursday 12 - 1pm, 20 August 2020.
Contact your Grant Thornton adviser now to discuss your company’s eligibility and how we will assist you in availing of this cash flow support.