How to work out and claim Corporation Tax relief 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 do not 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 cannot 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 155 on form CT600 and put the full amount of the loss in box 780. You should also enter the whole loss, or as much of the loss as you can claim, in box 275 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 155 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 275
- put the amount of the loss arising in this accounting period only in box 780
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 forward a trading loss
Certain losses that your company has not used in any other way can be offset against profits in future accounting periods.
Profits that arise from 1 April 2017
There are restrictions on the total amount of carried forward losses that can be offset against 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
More information about changes to relief for carried-forward losses
Read the loss reform 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 cannot 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 to carry back of trade losses
In the Budget 2021, the Chancellor announced a temporary extension to the carry back of trading losses from one year to 3 years, for losses up to £2,000,000 for accounting periods ending between 1 April 2020 and 31 March 2022. Losses must be set against profits of most recent years first before carry back to earlier years.
There is no change to the current one-year unlimited carry back of trade losses, however, for the extended relief, the amount of loss that can be carried back to the earlier 2 years of the extended period is capped for each of those 2 years. This is a cap of £2,000,000 of losses for all relevant accounting periods ending in the period 1 April 2020 to 31 March 2021 (financial year 2020).
A separate cap of £2,000,000 applies for all relevant accounting periods ending in the period 1 April 2021 to 31 March 2022 (financial year 2021). Groups will be subject to a group cap of £2,000,000 for each relevant period.
Extended loss carry back claims will be need to be made in a return, however, claims below a de minimis limit of £200,000 may be made outside a return. This means that any stand-alone or group company with losses capable of providing relief up to a maximum of £200,000 may make a claim in respect of a relevant accounting period without having to wait to submit its company tax return.
Make a de minimis claim
If you want to make a de minimis claim outside the company tax return, you can send a claim submission to HMRC.
You will need to give relevant information such as:
- company name
- agent code (if applicable)
- start and end dates of loss making accounting period
- amount of loss
- dates of accounting periods to carry the loss back to and the relevant amounts
- management accounts as a PDF if a tax return has not been completed for the loss-making accounting period
More information about the changes can be found in the Extended Loss Carry Back for Businesses.
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 HMRC.
You can amend your claim in the same way as you amend your return.
If HMRC does not 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.