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HMRC internal manual

Company Taxation Manual

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HM Revenue & Customs
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Corporation Tax: trading losses - relief against total profits: preceding accounting periods: general

CTA10/S37, CTA10/S38, CTA10/S39

Guidance on relief for trading losses against total profits is at CTM04505. Where the amount of a trading loss exceeds the profits of the same accounting period, the company may claim to carry back the excess against the profits of preceding accounting periods. The preceding accounting periods are those falling wholly or partly within the preceding period.

Losses may only be carried back against profits of a preceding accounting period if the company was carrying on the trade (in which the loss was incurred) at some time in that accounting period. It is not necessary for the trade to have been carried on for the whole of the preceding accounting period. If the trade was carried on at any time in an accounting period, then losses may be set-off against the profits of the whole of that accounting period.

The preceding period is usually the twelve months preceding the accounting period in which the loss is incurred. A temporary extension to this rule was introduced by FA09/S23. This extended the loss carry back to 3 years for accounting periods ending between 24 November 2008 and 23 November 2010. After carry back to the preceding year, a maximun of £50,000 of unused losses was available for carry back to the previous two years. This limit applied separately to the unused losses of each 12 month period within the period of the extension: a cap of £50,000 on the extended carry back of losses incurred in accounting periods ending in the 12 months to 23 November 2009, and a separate £50,000 cap in relation to accounting periods ending in the 12 months before that. Budget Note 13 issued on 22 April 2009 gives further detail.

If a company ceases to carry on a trade, the preceding period is three years preceding the accounting period in which the loss is incurred (CTM04520).

If an accounting period straddles the beginning of the preceding period:

  • its profits are apportioned on a time basis, and
  • relief is available only for the profits falling within the preceding period.

Profits of later accounting periods comprised in the preceding period are relieved before profits of earlier accounting periods. Accounting periods must be taken in order, most recent first. There are two examples at CTM04540.