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SMEs can profit from loss

New rules allowing small businesses to carry back losses for three years rather than one year are a good opportunity for firms to boost their group pension schemes.

The pre-Budget report extended rules allowing companies to offset losses against profits made in the last year so that up to £50,000 can be offset against profits made for the last three years.

If firms create an artificial loss this year by making a big contribution to the firm’s pension scheme, they can carry back that loss to the previous two years so they get their corporation tax back and effectively get tax relief on the pension contribution.

Skandia head of tax and financial planning Colin Jelley says: “You could always carry your losses forward but the effect of this rule is that you will get a tax rebate quicker on losses than you otherwise would have done so there is the opportunity for people to create trading losses by making pension contributions. If your company has some cash sitting on its balance sheet and you are thinking that a pension contribution would be a good strategy to follow, then this allows you to get immediate tax relief on it.”

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