Is it worth revisiting the position on ‘old’ 2023 corporation tax returns?
11th April 2025
Posted in Articles, Corporation Tax by Andrew Marr
Many of you will know that the main rate of corporation tax increased from 19% to 25% on 1 April 2023. Although it generally makes sense for brought forward losses to be set against profits as soon as possible (a bird in hand etc.) this general principle can be challenged for early 2023 year ends. In certain circumstances it may make sense for companies to resubmit tax returns to ‘disclaim’ losses so that they can be used in later tax years. To recap, a company must submit its corporation tax return within a year from the end of its accounting period, but after that it has a further year to amend its return. On this basis tax returns for the year ended 30 April 2023 can still be amended.
Where companies claimed brought forward losses against their profits in 2023 it may now make sense to amend the return so that losses can be used in a later year and benefit from a tax deduction at a higher rate.
Example
For the year ended 30 April 2023, Big Company Ltd made a taxable profit of £1.4m, but had trading losses of £1m brought forward leaving £400,000 of taxable profit. The blended rate of tax for the year was 19.49% (based on 335 days at 19% and 30 days at 25%). On 14 April 2025 the company submits an amended tax return for YE 30 April 2023 which does not claim relief for the brought forward losses but instead carries them forward to YE 30 April 2024 which has over £1m of profits. This action will increase the 2023 tax charge by £194,900 but will decrease the 2024 tax charge by £250,000. Prima facie this leads to a £55,100 tax saving but we also need to consider the interest position.
Late payment interest on the £194,900 would have run from 2 February 2024 to 1 February 2025 (A). Here I am assuming that £194,900 of the 2024 payment (paid 1 February 2025) can be reallocated to the earlier year with effect from the original payment date (i.e. from 1 February 2025). There would also be a small amount of repayment supplement on anything owed by HMRC from 31 January 2025 (B). Here A is £14,793 using a blended late payment interest rate of 7.59%. Assuming that this is taken out of the £55,100 repayment due, then there would be repayment interest on £40,127 since 31 January 2025 of around £280. Net interest expense would therefore be £14,513 which would be £10,885 after corporation tax relief. This planning would therefore give rise to a net tax saving of around £44,000.
Forbes Dawson view
Anecdotally we think that many companies will be missing out on this kind of planning. This is mainly due to a well-trodden path of always claiming available losses against any profits and then closing the position. Once it is known that there are profits in later years that can absorb the losses, then the value of this kind of planning should be easy to determine. In practice all loss claims should be reviewed for April 2023 year ends and later. Although the effectiveness of this planning will decrease as the year ends include more of the 25% rates, large loss figures could still lead to significant and easy savings.
