With loss carryforward and loss carryback, UK businesses can use trading losses to reduce their Corporation Tax bill. These losses can be offset against past or future profits, helping to improve cash flow or lower tax liabilities over time. It’s important to understand how each relief works to avoid errors when filing with HMRC.

What is loss carryforward and loss carryback?

In the UK, trading loss relief allows businesses to offset losses against profits from other periods. There are two main ways this can be done:

  • Loss carryforward: If your business incurs a trading loss, you can carry that loss forward to offset against profits in future accounting periods.
  • Loss carryback: You may also be able to carry the loss back to offset against profits from a previous period and potentially receive a tax refund.

These reliefs are governed by HMRC and primarily apply to Corporation Tax for limited companies, though sole traders and partnerships can also claim loss relief through Income Tax rules.

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How do loss carryforward and loss carryback differ?

The difference between these two lies in when and how the trading losses are used to reduce tax liabilities.

Loss carryforward

This option allows businesses to use a loss in one financial year to reduce profits—and therefore Corporation Tax—in future years.

Example:

Company A incurs a trading loss of £100,000 in the year ending 31 March 2023. In the next accounting year (ending 31 March 2024), it makes a profit of £150,000. The company can carry forward the £100,000 loss and offset it against the 2024 profit, meaning it only pays Corporation Tax on £50,000.

Note

From 1 April 2017 onwards, the rules allow more flexibility for loss use, but note that large companies (with profits over £5 million) may be subject to loss restriction rules, limiting how much of the profit can be offset.

Loss carryback

If a company made a profit in a previous accounting period, it may carry back current trading losses for up to one year (or three years in limited circumstances, such as temporary relief under COVID-19 provisions).

Example:

Company B made a profit of £200,000 in the year ending 31 March 2022 and paid Corporation Tax accordingly. In the year ending 31 March 2023, it incurs a trading loss of £120,000. The company can carry this loss back to 2022, offset it against the earlier profit, and claim a Corporation Tax refund for the relevant portion.

Who can claim loss carryback and carryforward?

  • Limited companies: Claim through the Corporation Tax return using the CT600 form and supporting schedules.
  • Sole traders and partnerships: Claim via Self Assessment, typically using the SA100 and SA103 forms.
Note

The rules for trading losses differ slightly between limited companies and unincorporated businesses.

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How to claim trading loss relief with HMRC

In order to benefit from a reduced Corporation Tax bill, you’ll need to follow HMRC’s procedures carefully. Below are the key steps to identify your trading loss, decide how to apply it, and submit the correct documentation.

1. Identify the loss

Prepare your company accounts and tax computation to confirm the trading loss for the accounting period. Losses must be calculated according to HMRC standards and exclude capital losses or disallowed expenses.

2. Decide how to apply the loss

You can:

  • Carry back the loss to the previous 12 months (1 year), or
  • Carry forward the loss against future profits.

You must claim loss relief within 2 years of the end of the accounting period in which the loss arose.

3. File the Corporation Tax return

Include the claim in your CT600 return:

  • For carrybacks, complete the relevant section and attach a loss memorandum explaining the claim and which period it’s being applied to.
  • For carryforwards, HMRC will automatically carry the unused losses forward once reported, but you must apply them in your next profitable return.

4. Amend previous returns (if carrying back)

To claim a refund, you may need to amend your Corporation Tax return for the previous year or submit a standalone claim. This can be done through HMRC’s online services or by post.

What to bear in mind

  • Time limits apply: Claims must usually be made within two years of the end of the loss-making accounting period.
  • Only trading losses apply: Other types of losses (e.g. capital losses) have separate rules.
  • Record keeping: Keep clear and detailed records of how losses were calculated and used. HMRC may request these in case of an enquiry.
  • Group relief: If your company is part of a group, you may also be able to surrender losses to other group companies.

Please note the legal disclaimer for this article.

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