Recession tax relief measures could 'discriminate' against some businesses

Unincorporated businesses could miss out on a tax relief scheme introduced by the Chancellor in the pre-Budget Report.

The scheme, aimed at supporting businesses during the downturn, allows small firms that suffer losses this year to offset them against profits up to £50,000 made in the last three years.

For some companies, the relief could amount to a cash rebate from HM Revenue and Customs of £20,000.

However, the Institute of Chartered Accountants in England and Wales (ICAEW) has said that scheme might put the self-employed and partnerships at a disadvantage compared with incorporated businesses.

Under the scheme, the relief is available for the 2008-09 tax year.

Unincorporated businesses, who see their profits and losses taxed for the year 6 April to 5 March and whose accounting year ends in early 2008, might not have registered the full adverse effects of the recession by then.

As a result, they could be prevented from claiming the loss relief because the bulk of any losses incurred during the worsening of the recession won’t appear on their books until the next accounting period, which will be the 2009-10 tax year.

Anita Monteith, tax adviser at the ICAEW, said: “The period as it is currently set out appears to discriminate against unincorporated businesses, which is surely unintended.”

To overcome the problem, the ICAEW has proposed that the Chancellor should extend the relief for a further two years and allow businesses to choose the year against which they want to claim the rebate.