Small business owners are cost conscious and astute when it comes to profitability. Yet the sudden changes and the ferocity of the recession has caught out many and a record number of businesses will this yr discover themselves in a loss-making situation for the first time.

Javeed Baig, a leading Leicester Accountant, is reminding his clients from the tax strategies available and importantly of some new tax allowances that must be considered. Mr Baig commented; "There are numerous tax allowances obtainable that simply may have never applied to successful companies previously. Your next tax return could be the most important that you have ever submitted and, prepared carefully, it could make a huge difference towards the amount that you hand over to the Government".

"Cash is King"

In times of recession cash is king and for the time being, Chancellor Alistair Darling has temporarily extended tax relief so that companies facing a loss can claim back tax paid in earlier many years. The claim for one year has now been extended to three many years. This facility applies to limited companies with losses in accounting periods ending among 24th November 2008 and 23rd November 2010. For sole traders and partnerships it applies, in most cases, to periods ending among 6th April 2008 and 5th April 2010.

Naturally, there is an order of events that must be followed. The business must make the tax claim against other income in the yr the losses arise. The loss can then be taken against trading profits of the preceding yr and up to £50,000 of any balance remaining towards the two remaining years.

This can supply a welcome relief despite the cap of £50,000. If you have losses exceeding the cap, or expect losses to exceed the cap in the next financial yr, it would be wise to seek professional assist as there methods to make this cap go a whole lot further. As with all successful tax planning, careful consideration is required.

When to Crystallise A Loss

The key issue facing the company owners is whether to hold the losses for future years to set off against future earnings, or utilize the losses and carry them back. If indeed you anticipate earnings in future years to take you into the greater rate tax bands, then preserving your losses will yield higher tax savings in the longer term.

This area remains complex and in numerous instances it's highly dependant on personal circumstances. There is no "one size fits all" solution and ultimately for many hard working small business owners cash will ultimately be king.