Corporation Tax losses: claims, carry-back and future relief

Calculate the tax loss rather than copying the accounts

A loss in the profit and loss account is a starting point, not necessarily the loss available for Corporation Tax relief. Depreciation, disallowable expenses, capital allowances and income categories can change the computation. A large accounting write-down may not create the same tax deduction, while qualifying capital allowances may generate a tax loss in a company with an accounting profit.

Ask for a schedule reconciling the accounts to the return. Separate trading activity, property income, finance items and capital disposals, rather than combining them into one negative balance. Keep the loss calculation for each accounting period and distinguish any amount already used. A company with a long first set of accounts may have more than one Corporation Tax accounting period, which adds a timing issue to both the profit and loss schedules.

Check relief in the loss-making period first

A trading loss can potentially be set against other profits of the same accounting period under the relevant claim rules. Identify the company’s income categories and whether a claim is required. Using a loss now may reduce a current liability, but the choice should be assessed alongside available carry-back relief and future trading plans.

A tax computation should show the amount available, the profits against which it is applied and the remainder. Avoid assuming the full accounting loss remains available after the return has already used part of it. The accountant should explain the claim order and any special rules for the trade, group or activity; a generic loss calculator cannot establish entitlement across all company types.

1. 1

   Calculate the adjusted trading loss for the correct period.

2. 2

   Identify other taxable profits in that period.

3. 3

   Review which current-period relief claims are available.

4. 4

   Record the amount used and the remaining balance.

5. 5

   Compare other routes before submitting the return.

Assess an ordinary carry-back against actual earlier profits

Trading losses can generally be carried back against eligible profits in the preceding twelve months, subject to the statutory conditions and claim requirements. The trade and timing rules matter, especially where the previous accounting periods do not align neatly with twelve months. An old article describing an exceptional extended carry-back should not be treated as the current ordinary rule.

A refund depends on earlier taxable profits and tax actually paid, not on the loss amount alone. Obtain the previous returns and calculations, identify available profits after other reliefs and check the claim deadline. If the previous period’s profits attracted a different effective tax calculation, multiplying the loss by a single headline rate may misstate the refund. Keep the amended or claim computation with the original period records.

Track carried-forward losses by category and vintage

Losses may be carried forward for use in future periods, but the category and when the loss arose affect the conditions. Post-April-2017 trading-loss rules can permit broader use than older rules, subject to claims and restrictions. Do not label every historic balance as freely usable against every type of future profit.

Changes in ownership, changes in the nature of the trade and substantial profits can affect relief. There can also be restrictions and deductions-allowance considerations for companies or groups with significant carried-forward losses. A dormant period or a business pivot deserves a review rather than an automatic entry. Maintain a roll-forward schedule that records opening losses, current additions, claims, restrictions and closing balances.

Treat group relief and terminal losses as separate work

Companies in a qualifying group may have group-relief opportunities, but shared ownership alone does not establish every condition. Eligibility, surrenderable categories, overlapping periods, consent and the relevant relationship must be checked. The group should document the allocation and any commercial payment for surrendered relief without assuming all losses are interchangeable.

Cessation of a trade can bring terminal-loss rules into consideration, distinct from ordinary ongoing carry-back. Decide whether the trade truly ceased and identify the relevant final period. Selling assets, becoming dormant or changing what the company does can produce different consequences. Get advice before closing or selling a loss-making company, because an action taken for commercial reasons may affect the value and use of remaining losses.

• Confirm the qualifying group relationship and overlapping periods.
• Review the precise loss category that can be surrendered.
• Keep consent and allocation records.
• Distinguish trade cessation from temporary inactivity.
• Review unused losses before a sale, restructuring or dissolution.

Worked example: relief is limited by available profit

Illustrative example: a company has a £30,000 tax-adjusted trading loss. Assume it uses £5,000 against eligible other profits in the same period. It then has £25,000 left to assess for carry-back. If only £18,000 of eligible prior-period profit is available, a claim covering that profit leaves £7,000 to consider for carry-forward under the applicable rules.

The refund on the £18,000 offset must be calculated using the earlier period’s actual tax position. It is not £30,000 returned to the company and is not necessarily the loss multiplied by an assumed rate. The schedule should show the £5,000, £18,000 and £7,000 separately so neither the return nor next year’s accounts reuse the same loss.

Prepare a loss-claim decision pack

A loss-making company should ask for a tax-adjusted computation and a clear schedule of the available category balances. It should not rely on the accounting software’s negative profit figure as a refund estimate. The pack includes earlier returns, taxes paid, current other income, capital allowance decisions and any ownership or trade changes. The accountant explains which claims are optional, how ordering affects the remaining balance and what deadlines apply. If accounts cover more than one tax accounting period, the loss and possible carry-back windows are analysed for each relevant period.

The directors compare cash now with potential future relief. Carry-back may recover previously paid tax where eligible profits exist, but using a loss against current profits or preserving a balance can produce a different overall result. The earlier period’s actual calculation determines the refund, including any thresholds or associated-company effects. A group surrender requires its own relationship, overlap and consent checks. The chosen route is recorded with the return so next year’s accountant sees exactly how much was used and does not claim the same amount again.

A remaining carried-forward balance is reviewed at each material event, not simply copied indefinitely. An acquisition, ownership change, new activity or cessation can affect entitlement and restrictions. The company keeps the original calculation and later uses together, with separate categories rather than one blended loss number. If a refund is expected, the cash forecast identifies its status and uncertainty. Directors facing wider distress still obtain appropriate financial advice; a valid tax loss is an asset only to the extent that relief can actually be obtained and does not itself resolve overdue operating debts.

1. 1

   Gather the records described above before making the decision.

2. 2

   Review the case-specific assumptions with the appropriate adviser.

3. 3

   Record the agreed action, responsible person and relevant dates.

4. 4

   Reconcile the outcome to the company’s actual records.

Keep tax relief out of the operating forecast until supported

A loss claim can improve cash flow, but a forecast refund should be tied to a completed computation, valid claim and realistic processing assumptions. Keep trading cash requirements separate from a refund that has not yet been agreed or received. HMRC can ask for records supporting the loss and earlier profits.

Retain accounts, expenditure evidence, returns and the loss schedule for the required period, including longer where the official rules require it. Review the schedule with each annual return and at any ownership change. If the company is running out of money, a potential loss refund does not remove directors’ duties or make new borrowing safe; take timely professional advice alongside the tax work.

Common questions

Official sources & further reading

This guide draws on the official guidance below. Rules, fees and individual circumstances can change; check the relevant source before acting.

• HMRC: Calculating and claiming a trading loss
• HMRC: Carry forward Corporation Tax losses
• HMRC: Group relief

General UK information, primarily for private companies limited by shares. This is not personalised legal, tax or financial advice. An accountant or solicitor can help apply the rules to your situation.