Loss relief

Trading losses

If your company makes a loss from its trading operations then it can claim relief against corporation tax.

Current year

If you make a trading loss, you can offset the loss against profits/gains from other trades or sources in your company in the current year.

Carry back against previous year

If you can’t use up all your losses in the current year, you can also  carry them back against the total profits of the previous year. If you already paid tax for the previous year, then you could get a cash refund from HMRC.

To do this, you’d need to enter the loss to be carried back in your current year’s tax return, tick a repayment is due and then either amend the previous year’s tax return or make a claim under s.37 of CTA. If not amending the previous year, you can try to make the claim by making a note in the trading losses section of the tax computation and if this doesn’t work you’d need to write to HMRC.

There is a time limit of making the claim within 2 years of the end of the accounting period when the loss was made. Eg a loss in YE 31/12/2021 needs to be claimed by 31/12/2022.

There is also a temporary rule due to Covid-19 to carry back losses for upto 3 years.

Carry forward

If you can’t use the losses in the current/previous year, you can also carry them forward to be offset against future profits relating to the same trade.

For example, if you make a loss in a consulting trade, this can’t be offset against a new trade in future relating to e-commerce.

Key legislation: CTA 2010 s.35 onwards

Property income losses

If you have a loss from renting out a property (eg house/flat or shop/office) then it can be offset against trading profit or other income (from the same property business) in the current year or in future years.loss

But it cannot be carried back.

Capital losses

If you make a capital loss, for example from selling shares or property at a loss, then these can only be offset against capital gains arising in the current year or in the future.

They cannot be carried back and they cannot be used against trading profits or other income.

Key legislation: TCGA92/S8

By Mohammed Haque

Mohammed is a chartered accountant (ICAEW) with many years of experience in dealing with complex audit, accounting and tax matters.