How to Calculate and Claim Corporation Tax Trading Losses

If your company makes a trading loss, you don't have to wait until you're profitable again to get tax relief. You can use those losses to reduce your Corporation Tax bill — either by offsetting them against other profits in the same year, carrying them back to reduce tax you'v...

What counts as a trading loss

A trading loss is the loss your company makes from its trade, worked out for Corporation Tax purposes. This is different from the loss figure in your company accounts.

To calculate your trading loss for Corporation Tax, start with the profit or loss in your financial accounts, then make tax adjustments. You should:

Include capital allowances — these increase the loss
Include balancing charges — these reduce the loss
Include certain annuities and charitable donations (known as 'trade charges')
Exclude any losses or gains from selling or disposing of capital assets — these are capital losses, not trading losses

Capital allowances are tax deductions for business assets like equipment and vehicles. Balancing charges occur when you sell an asset for more than its tax written-down value.

How to claim trading loss relief

You claim trading loss relief as part of your Company Tax Return (form CT600). The way you complete the form depends on whether you're using losses from the current period or a later one.

If your claim covers the company's latest accounting period:

Enter '0' in box 155
Enter the full amount of the loss in box 780
Enter the whole loss (or as much as you can claim) in box 275 against your total profits

If the claim includes losses from a later accounting period:

Enter '0' in box 155
Enter the full amount of trading losses you're claiming against total profits in box 275
Enter only the loss arising in this accounting period in box 780

Using losses in the same accounting period

The most straightforward way to use a trading loss is to offset it against other profits in the same accounting period. This could include other income streams your company has, such as investment income or property income.

You get tax relief by reducing your total profits for the period, which reduces your Corporation Tax bill.

Carrying a trading loss back

Instead of carrying a loss forward, you can claim to offset it against profits from the earlier 12-month period. Note this is a 12-month period, not the previous accounting period.

You can only carry back a loss if your company was carrying on the same trade at some point during that earlier 12-month period.

Example: Your company makes a loss of £8,000 in the year ending 31 December 2016, and made profits of £20,000 in the previous 12 months. You can carry back the £8,000 loss to reduce the earlier profits from £20,000 to £12,000, which means HMRC will refund some of the Corporation Tax you already paid.

When accounting periods straddle the 12-month period

If an earlier accounting period straddles the 12-month period, you can only offset the loss against the portion of profit that falls within those 12 months.

Example: Your company has a loss of £8,000 for the year ending 31 December 2016. The earlier accounting periods were:

£2,000 profit for 1 July 2015 to 31 December 2015
£10,000 profit for 1 July 2014 to 30 June 2015

You can carry back £2,000 of the loss to cover the whole profit in the period ending 31 December 2015.

Of the remaining £6,000 loss, only 6 months of the earlier period's £10,000 profit falls within the 12-month lookback period. This means only £5,000 (6 ÷ 12 × £10,000) can be used. The remaining £1,000 would be carried forward.

How to claim carry-back relief

Make your claim when you submit your Company Tax Return for the period when you made the loss. You can claim in the return itself, in an amendment to the return (within the amendment time limit), or in a letter to HMRC.

If your claim reduces Corporation Tax for an earlier period, mark the appropriate box on the CT600 form with an 'X'.

Claims must be made within 2 years of the end of the accounting period when you made the loss. Your claim should include:

Your company name
The period when the loss was made
The amount of the loss
How you want to use the loss

If you're offsetting a loss against a period where you've already paid the tax, HMRC will send you a repayment (unless you owe other Corporation Tax, which will be deducted first).

Carrying a trading loss forward

If you don't use your trading loss in the current year or carry it back, it's carried forward to offset against profits in future accounting periods.

Restrictions on carried-forward losses from 1 April 2017

For profits arising from 1 April 2017 onwards, there are restrictions on how much carried-forward loss you can use.

For carried-forward trading losses that arose before 1 April 2017, the amount you can use is broadly restricted to:

An allowance of up to £5 million, plus
50% of remaining trading profits after deducting the allowance

For most types of carried-forward losses (including trading losses incurred either before or after 1 April 2017), the overall amount is restricted to:

An allowance of up to £5 million, plus
50% of remaining total profits after deducting the allowance

This means if your company has profits above £5 million, you cannot use all your carried-forward losses in a single year — at least 50% of profits above the threshold will remain taxable.

Group relief for trading losses

If your company is part of a group with qualifying group relationships, you can choose to offset trading losses against profits of other group members, instead of carrying them forward or back.

This gives you more flexibility to use losses where they're most beneficial across the group.

Sources

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.