HMRC internal manual

Company Taxation Manual

CTM04510 - 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 twelve-month period ending immediately before the beginning of the loss-making accounting 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.

Temporary extension to one year carry back rule

A temporary extension to this rule was introduced by S18 and Sch 2 of Finance Act 2021 in response to the COVID-19 pandemic. This extends the 12 month carry back to three years for accounting periods ending between 1 April 2020 to 31 March 2022. After carry back to the preceding 12-month period, the amount of loss that can be carried back to the two years covered by the extended period is capped. 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 are subject to a group cap of £2,000,000 for each financial year and are required to submit a loss carry-back allocation statement where any non-de minims claims (i.e. those exceeding £200,000) are made. Non-de minimis claims must be made in a return and , if made by group companies, are invalid unless accompanied by the loss carry-back allocation statement. The requirements for group claims and the loss carry-back allocation statements are covered in The Coporation Tax (Carry Back of Losses: Temporary Extension) Regulations 2021 (SI2021/704). The guidance note published on GOV.UK provides further detail. ()

A previous extension was introduced by FA09/S23 in response to the Financial Crisis. 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.

Terminal losses

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.