Loss offset extension of limited use for SMEs

An extension of the time period businesses can offset a trading loss against profits in previous years is unlikely to generate significant gains for SMEs, the Treasury Select Committee has heard.

Currently SMEs can only carry-back a loss for one year. In last month’s pre-Budget report the government extended this carry back period to three years but capped the amount of losses that can be claimed at £50,000.

In a committee session on the PBR last week, John Whiting, representing PricewaterhouseCoopers and the Chartered Institute of Taxation, said the proposed changes ‘sound good on the surface but are really very modest.’

He said the process for submitting claims to offset losses was too slow for SMEs who needed the tax rebate quickly.

‘What I’m after is a simple mechanism for SMEs to say they’re making a loss. It’s not just about giving them more time to pay,’ Whiting said.

Last week’s confirmation of 90 tax office closures and about 3, 000 staff cuts within HM Revenue and Customs ­ part of an efficiency drive ­ will potentially affect the resources that will be made available to help SMEs renegotiate their payment terms, according to Whiting.

Chancellor Alistair Darling has said HMRC will have sufficient resources to implement changes to the tax system.

The Treasury Select Committee also heard evidence from representatives of business and academia that while the PBR addressed many ongoing concerns, it failed to go far enough, particularly the 2.5% cut in VAT to 15%.

Some questioned whether the VAT cut would boost consumer spending at a time when many consumers and businesses are struggling to obtain credit.

Others were skeptical over government forecasts for the economy made in the PBR.

Roger Bootle, managing director of Capital Economics, said government forecasts for economic growth to 2010 were a ‘complete stab in the dark.’