2Jun

Changes to tax loss relief ‘could lead to more business failures’

 

The recent changes to corporation tax loss relief could lead to more business failures, according to the insolvency specialists, R3.

From 1 April this year, companies are only allowed to write off 50% of past losses from future corporation tax bills, rather than the previous 100%.

 

The changes are expected to raise £1.6bn over the next five years, but this could come at the cost of an increase in business failures.

 

Andrew Tate, the president of R3, said: “The loss relief reforms could damage business rescue in the UK. In some cases, business rescues will be hindered by hefty tax bills. More business failure and less business rescue will be the consequence.

 

“It’s frustrating that while the government is considering reforms to boost business rescue, the failure to tweak the loss relief reforms could cancel out that work significantly.

 

“The impact on other creditors in situations where businesses have failed is problematic, too. The failure of one company can cause the failure of another if there is not enough money owed to it returned through an insolvency procedure. By limiting loss relief so significantly, HMRC is essentially jumping the queue of creditors and will benefit from money that could have been a lifeline for small businesses and other trade creditors.”

 

The warning highlights the need for businesses to keep a tight rein on credit control to ensure they are paid promptly. Invoices that are allowed to remain unpaid for long periods may prove impossible to recover if the debtor goes out of business.

 

A solicitor’s letter is often enough to ensure payment. If not, the law provides several other ways to recover debts up to and including court action.

 

For more information about this article or any aspect of our litigation and mediation services, please call Jeremy Garson on 020 8907 2000 or click here to email him and he will be delighted to help you (there is no charge for an initial telephone discussion).

 

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