Trading Losses for Companies

Setting Losses Against Current Period Profits

A company that makes a trading loss in an accounting period can claim to set that loss against its total profits of the same period. Total profits include trading income from other trades, investment income, property income, and chargeable gains.^[1]

Key points:

• The claim is all or nothing — you cannot restrict the offset to preserve other reliefs (such as the Personal Allowance equivalent for companies, or charitable donations)
• The claim must be made within two years of the end of the loss-making accounting period
• Any loss remaining after the current-period offset can be carried back or carried forward

Carrying Losses Back

After setting losses against current-period profits, any remaining loss can be carried back to the previous 12 months and set against total profits of that earlier period.^[1]

Terminal loss relief is particularly valuable when a company is closing down and has significant final-period losses. The 3-year carry-back allows recovery of CT paid in profitable earlier years.

Carrying Losses Forward

Trading losses that are not relieved in the current period or carried back can be carried forward indefinitely.^[2]

For losses arising from 1 April 2017 onwards, the carry-forward rules were reformed:

• Carried-forward losses can be set against total profits, not just profits of the same trade
• A £5 million deductions allowance applies each year — the first £5 million of total profits can be fully covered by carried-forward losses
• Beyond £5 million, only 50% of remaining profits can be relieved by carried-forward losses
• The £5 million allowance is shared across the group (for groups of companies)

Group Relief

Where a company is part of a 75% group (the parent holds at least 75% of the subsidiary’s ordinary share capital, directly or indirectly), trading losses can be surrendered to another group company. The claiming company sets the surrendered loss against its own total profits of the corresponding period.^[3]

• Current-period group relief — losses of one company surrendered to another for the same accounting period
• Group relief for carried-forward losses — from April 2017, carried-forward losses can also be surrendered within the group (subject to the £5 million deductions allowance)
• Consortium relief — available where a company is owned by a consortium (each member holds at least 5% but no single member holds 75%)

Both the surrendering company and the claimant company must submit matching claims and notices.

Practical Considerations

Loss relief is not automatic. Companies must actively claim it, and the choice of how to use losses can have a significant impact on cash flow and future tax bills.^[2] Claims are made on the CT600 — GoFile’s Corporation Tax software includes the loss relief boxes.

• Time limits — current-period and carry-back claims must be made within two years of the end of the loss-making period
• Anti-avoidance — loss relief can be restricted where there is a change of ownership combined with a major change in the nature or conduct of the company’s trade (s.673 CTA 2010)
• Order of set-off — consider the interaction with other reliefs such as capital allowances, R&D credits, and the Patent Box to optimise the overall tax position
• Amending returns — loss carry-back claims may require amending the CT600 for the earlier period

Further Reading

• Group Relief — detailed guide to loss surrender within groups
• Marginal Relief — how losses can affect your marginal rate position
• Taxable Profits Explained — how profits are calculated before loss relief
• Corporation Tax Refunds — claiming back CT when carrying losses back