A temporary scheme (Accelerated Loss Relief for Companies) allowing companies to claim back corporate tax paid last year against losses anticipated this year has been introduced in Ireland.
This scheme, according to the Government, is intended to increase cash flow for companies that are now loss-making as a direct result of the measures put in place due to Covid-19. The measure will allow companies to estimate their trading losses this year and immediately carry back up to 50% of these losses against profits made in the preceding accounting period.
In normal circumstance, only at the end of the accounting period in which the loss occurred and following the filing of a tax return for said period can claims for carry-back loss relief be made. Through what is called an “interim claim” this measure will allow companies to expedite claims for this relief.
Under the measure, losses may be carried back if they are incurred in an accounting period that covers all or part of the 1st March – 31st December 2020 period. This in turns mean that accounting periods which end in 2020 or 2021 could be eligible for accelerated loss relief.
In the event that two accounting periods may fall within the March to December 2020 date range, for example for company with an accounting period ending in July 2020, generally a claim may only be made for one accounting period. The reason for this is that the company in question must have made a profit in the prior accounting period to claim a refund of tax, but it will also have made two successive losses, ie 2019/2020 and 2020/2021. Therefore, a claim will only be possible in respect of losses in 2019/2020 against the tax paid on profits in 2018/19.
Under the legislation, companies are allowed to submit claims for losses based on what’s known as “reasonable best estimate”. Guidance issued by Revenue states that, a company will be regarded as having made a best estimate where a genuine attempt has been made to calculate the loss based on all the information available to the company at the time of the claim.
When Claims Can Be Made
An interim claim may be made four months after the beginning of the specified accounting period and up to five months after the end of that period.
An unlimited number of revisions can be made by the company to it’s interim claim as the accounting period progresses and as mentioned above, up to five months after its end also. Revisions can include increasing it’s interim claim where the company estimates that its loss for the specified accounting period will be greater than the amount previously expected.
A claim is made through a revision to the prior year’s corporate tax return (CTI). There is no supporting documentation needed when submitting the return. However, Revenue may seek documentation to substantiate the claim at a later date.