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One of the challenges in a recession is for a business to get effective tax relief for any losses. The basic rule is that losses in a particular year may be carried back for offset against profits in the prior year and generate a tax repayment.

At the Pre Budget Report, the Chancellor announced that businesses could elect to carry-back losses of up to £50,000 against profits in the previous three years. However, this election only applies to the accounting period that ended in the year from 24 November 2008- 23 November 2009 and the two most common year-ends will be 31 December 2008 and 31 March 2009. For some businesses, it is thought that the subsequent years will be more difficult, with the result that the loss relief may not be particularly effective. As a result, we hope that the Chancellor will extend the three year carry-back rules and also lift the limit on the amount that can be carried back. A £50,000 carry-back is likely to result in a tax repayment of only £10,500.

A much more imaginative approach would be for the Treasury to buy tax losses from businesses. The Royal Bank of Scotland has paid in part for participation in the Asset Protection Scheme by giving up tax losses. A similar approach could be extended to other companies, perhaps allowing them to sell losses to the Treasury at a discount. This has the twin benefits of putting money into business when it is most needed and also making sure that companies start paying tax again, once profitability resumes.