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Small Companies & Corporation Tax Losses

I run my own small limited company, with profits in previous years below £100,000. I’m uncertain as to whether we will actually breakeven this year, so can you advise whether the Pre Budget Report 2008 will help with our corporation tax bill?

Yes there are two substantial corporation tax measures taken by the Government in last month Pre Budget Report.

In the last Budget, they had planned to increase the small companies corporation tax rate from 21% to 22% with effect from 1 April 2009. This has now been deferred until 1 April 2010. One percent may sound small, but on a company like yours with profits of £100,000 it will amount to a £1,000 corporation tax saving.

The second measure was to extend loss relief’s available on any trade losses, (arising for a corporation tax period falling between 24 November 2008 and 23 November 2009), from 1 year to 3 years. One minor details is that after losses have been set against the previous 12 month period under current legislation, the extended relief only allows the amount of the loss that be carried to the preceding 2 years to be capped at £50,000.

For most small business this £50,000 cap will not have an impact, and it will provide a massive cashflow benefit in the current economic climate, as previously if losses exceeded profits in the previous 12 month period, the loss would just be offset against future trade profits.

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