Dáil Éireann Debate, Tuesday - 15 December 2020
218. Deputy John Lahart asked the Minister for Finance if his attention has been drawn to an anomaly (details supplied) that may exist in relation to the July Stimulus package and a 2020 tax return; and if he will make a statement on the matter. [43533/20]
View answerI understand that the Deputy is referring to the accelerated loss relief provisions that I introduced earlier this year to assist companies and self-employed individuals that have been adversely impacted by the COVID-19 pandemic and related restrictions. I understand that the anomaly suggested by the Deputy does not arise and that Revenue has confirmed the position in its published guidance.
The loss relief can be of relevance to both businesses liable to income tax (such as sole traders) and those liable to corporation tax.
Dealing with income tax first, section 10 of the Financial Provisions (Covid-19) (No. 2) Act 2020 introduced a new Chapter 2A ‘Income tax: Covid-19 loss relief’ in the Taxes Consolidation Act 1997 (‘TCA 1997’). This provides for a number of temporary income tax measures to assist self-employed individuals. Section 395A TCA 1997 provides for income tax relief for losses incurred in the period 1 January 2020 to 31 December 2020 by individuals carrying on a trade or profession, either as sole traders or in partnerships. Where a self-employed individual incurs losses in a basis period ending in 2021, relief will be available where part of those losses were incurred in the period 1 January 2020 to 31 December 2020.
Specifically, the section provides that where, in a tax year, an individual carrying on a trade or profession:
- incurs a loss which would be available to carry forward to the following tax year, and
- all or part of the loss is incurred in the period 1 January 2020 to 31 December 2020,
then the individual may claim to have any part of the loss that is incurred in the period 1 January 2020 to 31 December 2020 carried back and set off against the profits of the same trade or profession for the tax year 2019.
This is a once-off measure targeted at otherwise viable businesses that were profitable in 2019 but who have incurred losses in 2020 as a result of the initial response to Covid-19 pandemic. It is not an on-going loss relief measure, so the look back period solely relating to 2019 as the pre-pandemic period is appropriate in this context. Further, the provision made in the July Stimulus Package of €150m relating to the estimated 280,000 potential beneficiaries was based on this approach.
Subject to meeting certain conditions, self-employed individuals may make an interim claim for relief in respect of an estimated amount of the relief that will be due to them under section 395A. Similar provisions apply in respect of unused capital allowances relating to the period 1 January 2020 to 31 December 2020. The maximum amount of relief that an individual may claim in respect of losses and capital allowances is capped at €25,000. Revenue have published examples of the operation of the relief in the Tax and Duty Manual Part 12-01-03, which is available on Revenue’s website.
Turning now to corporation tax, section 11 of the Financial Provisions (Covid-19) (No. 2) Act 2020 introduced a new section 396D in the TCA 1997. The provision allows companies, subject to certain conditions, to make a claim to carry back up to 50% of their estimated trading losses incurred in an accounting period, which contains some or all of the period 1 March to 31 December 2020, against their profits of the preceding accounting period.
Under normal rules, this carry back would not take place until up to nine months after the end of the loss-making accounting period, when the corporation tax return is filed. The accelerated corporation tax loss relief allows claims to be made (and revised if necessary) at any time from four months into the loss-making accounting period and up to five months after the end of that accounting period. This significantly accelerates the tax repayments to companies that can be generated from the offset of these losses against previously taxed profits. The balance of the loss will be available for carry back in due course under normal rules, when accounts have been prepared after the end of the company’s accounting period and a corporation tax return has been filed.
Therefore, provided it satisfies the relevant conditions, a company with a 12-month accounting period ending in 2021 will be allowed to project the trading loss that it expects to suffer in its 2021 tax year and to lodge an early claim for carry-back of half of that expected loss against taxable profits of its 2020 tax year. Revenue’s Tax and Duty Manual Part 12-03-05, which is published on Revenue’s website, contains examples in this regard.
