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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