Guidance for companies to work out and claim relief from Corporation Tax on trading losses.
If your company or organisation is liable for Corporation Tax and makes a loss from trading, the sale or disposal of a capital asset, or on property income, then you may be able to claim relief from Corporation Tax.
You get tax relief by offsetting the loss against your other gains or profits of your business in the same accounting period. You can also choose to carry the loss back, if you don’t it will be carried forward to another accounting period.
This guidance only covers trading losses.
There’s separate guidance on how to work out and claim tax relief from Corporation Tax on terminal, capital and property income losses.
The trading profit or loss for Corporation Tax purposes is worked out by making the usual tax adjustments to the figure of profit or loss shown in your company or organisation’s financial accounts.
To calculate a trading loss you should:
- include any capital allowances (these increase the loss)
- include any balancing charges (these reduce the loss)
- not include any losses or gains that might be made on the sale or disposal of assets
- include certain annuities and charitable donations (known as ‘trade charges’)
If you make a trading loss and it can’t be used in the same year, you may be able to choose to carry it back to earlier accounting periods, or it will be carried forward to be set off against the profit for future periods.
How to claim a trading loss
A claim for trading losses forms part of your Company Tax Return.
If your claim covers the company’s latest accounting period, then enter ‘0’ in box 3 on form CT600 and put the full amount of the loss in box 122. You should also enter the whole loss, or as much of the loss as you can claim, in box 30 against your total profits.
You must do all of the following if the claim includes losses from a later accounting period:
- enter ‘0’ in box 3 on form CT600
- enter the full amount of trading losses arising in this or a later accounting period that you can claim against total profits in box 30
- put the amount of the loss arising in this accounting period only in box 122
Groups and trading losses
If your company or organisation has a qualifying group relationship with another company, then you can choose to offset certain losses, including trading losses, against profits of other members of the group, instead of carrying it forwards or back.
Carry a trading loss forward
Trading losses that you’ve not used in any other way can be offset against profits in future accounting periods, so long as the trade continues.
Trading losses are carried forward and set against profits of the same trade of the next accounting period for losses made in accounting periods ending before 1 April 2017.
You don’t have to make any claim for this to happen as it’s done automatically if you fill in your Company Tax Return.
For accounting periods from 1 April 2017, the way trading losses are set off will depend on when they arise.
Losses that arise up to 31 March 2017
These losses are carried forward and set against profits of the same trade of the next accounting period. A claim isn’t needed and the set off is done automatically. If you don’t want the losses set off, you can make a claim for these to be carried forward and set against trading profits of the following period instead.
The claims must be made within 2 years of the end of the accounting period for which no relief is to be given. The claim should normally be made by amending your tax return.
Losses that arise from 1 April 2017
These losses are carried forward. In most cases they can be set against total profits of the company, or in certain circumstances, against total profits of a group company.
You need to make a claim for the relief within 2 years of the end of the accounting period in which the losses are to be set off. The claim should normally be made by amending your tax return.
Profits that arise from 1 April 2017
There are also restrictions on the total amount that can be relieved for profits of accounting periods from 1 April 2017.
These apply to carried-forward trading losses so that the total:
amount that can be relieved using carried-forward trading losses that arose before 1 April 2017 is restricted to, broadly, the amount of an allowance up to £5 million, plus 50% of remaining trading profits after deduction of the allowance
overall amount that can be relieved using most types of carried-forward losses - including carried-forward trading losses incurred either before or after 1 April 2017 - is restricted to, broadly, the amount of an allowance up to £5 million, plus 50% of remaining total profits after deduction of the allowance
Accounting periods that begin before and end after 1 April 2017
The profits and losses of the periods are apportioned.
Profits and losses arising:
- before 31 March 2017 are treated as arising in a separate accounting period ending on that date
- from 1 April 2017 are treated as arising in a separate accounting period beginning on that date
More information about changes to relief for carried-forward losses
Read the Reform to Corporation Tax loss relief: draft guidance for more information about the way relief for carried-forward losses changed from 1 April 2017.
Carry a trading loss back
Instead of carrying a loss forward, you can claim for the loss to be offset against profits for the earlier 12 month period (not accounting period).
You can only do this if your company or organisation was carrying on the same trade at some point in the accounting period or periods that fall in the earlier 12 month period.
For example, if your company or organisation has a loss of £8,000 in the accounting period 1 January 2016 to 31 December 2016 and profits of £20,000 in the earlier 12 months, you can carry back the £8,000 loss to be set off against the profits for the previous accounting year, this will reduce them from £20,000 to £12,000.
If an accounting period straddles that 12 month period, the profit for that period is apportioned and the loss can only be offset against that portion of the profit that falls within the 12 month period.
For example, your company or organisation has a loss of £8,000 in the accounting period 1 January 2016 to 31 December 2016 and it’s recently changed its accounting date, so that the accounting periods and profits of the earlier periods were:
- £2,000 for 1 July 2015 to 31 December 2015
- £10,000 for 1 July 2014 to 31 July 2015
You can carry back £2,000 of the loss to cover the whole of the profit in the period ended 31 December 2015.
The balance of the loss of £6,000 can’t be entirely carried back as only 6 months of the profits of £10,000 fall into the earlier 12 months of the loss making period.
Only a loss of £5,000 (6/12 x £10,000) can be used, and the balance of £1,000 is available to be carried forward to the year ended 31 December 2017.
Temporary extension of the carry-back of trading losses
For accounting periods ending between 24 November 2008 and 23 November 2010, you can carry back trading losses to the earlier 3 year period (rather than 12 months). Any loss must be fully offset first against profits of most recent years before being carried back to earlier years.
The 1 year unlimited carry back of trade losses hasn’t changed. For the extended relief, the amount of loss that can be carried back to the earliest 2 years of the extended period must be capped at £50,000.
This £50,000 limit applies separately to each 12 month period within the length of the extension. This means a cap of £50,000 on losses incurred in accounting periods ending in the 12 months to 23 November 2009 and a separate £50,000 for losses arising in accounting periods ending in the 12 months to 23 November 2010.
How to claim for a trading loss to be carried back, or amend a claim
You can make a claim to carry back a trading loss when you submit your Company Tax Return for the period when you made the loss.
You can make your claim in your return or in an amendment to the return, as long as you’re within the time limit to amend it. You can also make your claim in a letter.
If you’re making a claim in your return that reduces your Corporation Tax liability for an earlier period, you must make sure you have put an ‘X’ in the appropriate box on the CT600 form.
A claim should be made within 2 years of the end of the accounting period when you made the loss. Your claim should include:
- the name of your company or organisation
- the period when the loss is made
- the amount of the loss
- how the loss is to be used
If you send your claim separately, send it to HM Revenue and Customs (HMRC).
You can amend your claim in the same way as you amend your return.
If HMRC doesn’t carry out a compliance check into your return or stand alone claim, or any later amendment, then the amount of the loss becomes final. HMRC can ask about the usage of the loss in a future return (for example, to check whether the same trade is still being carried out).
If you’re offsetting a loss against an accounting period where you’ve already paid the tax due, HMRC will send you a repayment, unless you owe any Corporation Tax, when it will be deducted from the payment first.