Losses carry back extended

A measure announced in the 2008 Pre-Budget Report to help cash flow for struggling businesses has been extended for a further year.

Companies and unincorporated businesses can normally carry back losses against profits of the previous year although there are special rules allowing a carry back for three years for unincorporated start-ups and also for businesses that cease to trade.

For company accounting periods ending between 24^th November 2008 and 23^rd November 2010, and unincorporated businesses ending in tax years 2008-09 and 2009-10 the three year carry back will apply to all losses. The claims will be subject to a maximum loss carry back of £50,000 for each accounting year to the earlier two years of the three year carry back period. This will result in businesses being able to claim refunds of tax paid in the earlier years, albeit to a limited extent.

Temporary u-turn on first year capital allowances

From April 2009 first year allowances on plant and machinery are being reinstated temporarily. In April 2008, after lengthy consultations, first year allowances were replaced by a 100% Annual Investment Allowance (AIA) on £50,000 of capital expenditure on most plant and machinery. The Chancellor has decided that investment in businesses needs more help and is to reinstate the first year allowance.

The 100% AIA was welcomed last year as businesses are free to allocate the AIA in any way they wish, leaving them free to maximise their tax savings by ensuring that the allowance is allocated against assets that would normally qualify for the lowest reliefs.

Where businesses spend more than £50,000 on plant and machinery then it may be possible to claim the new 40% first year allowance on the excess, in addition to the 100% AIA on the first £50,000. There will be certain conditions and exceptions, such as cars and assets to be leased will not qualify.

Company car tax to change in 2011

New benefit in kind rates will apply for company cars provided after 5^th April 2011. Where an employee is provided with a company car for their private use they will be taxed on a benefit in kind, which is reported each year on HM Revenue and Customs form P11D. The calculation of the benefit in kind is based upon the list price of the vehicle and accessories provided and the CO2 emissions.

The rates used in the calculations will change in 2011 and subsequent years. The current £80,000 cap to the list price used will be removed increasing the taxable benefit for those employees with cars costing more than £80,000.