Corporation tax trading losses and how to use them

Recording the loss on the return

HMRC's loss guidance says to enter 0 in box 155 of the CT600 for trading profits and the full loss in box 780. A claim against the company's total profits of the same period goes in box 275.

The current period and the previous 12 months

Under section 37 of the Corporation Tax Act 2010, a company that makes a trading loss can claim to deduct it from its total profits of the loss-making period. The claim can also reach the total profits of periods falling within the 12 months before the loss-making period began, if the company carried on the same trade then. Total profits include interest, property income and chargeable gains.

The claim must be made within 2 years after the end of the loss-making period, or a longer time an HMRC officer allows (CTA 2010 s37). Relief is not available for a trade carried on wholly outside the UK.

Carrying a loss forward

A trading loss made in an accounting period beginning on or after 1 April 2017, and not used under section 37 or surrendered as group relief, is carried forward. The company can claim to deduct it from its total profits of a later period, or part of it, within 2 years after the end of that later period (CTA 2010 s45A). The claim is not available if the trade became small or negligible in the loss-making period.

Losses carried forward from before 1 April 2017 can be used only against profits of the same trade (GOV.UK: carry forward losses).

The deductions allowance

Allowance

£5,000,000 for a company that is not in a group (CTA 2010 s269ZR)

Cap on losses used

The allowance plus 50% of the remaining profits (CTA 2010 s269ZB; GOV.UK)

Short periods

Reduced in proportion for a period shorter than 12 months (CTA 2010 s269ZR)

Groups

One £5,000,000 allowance shared across the group by a nominated company (CTA 2010 s269ZR)

Worked example of the restriction

For example, a company with no group has £8 million of trading losses carried forward and makes trading profits of £7 million in the year to 31 March 2027. The most it can deduct is the £5 million allowance plus 50% of the remaining £2 million, which is £6 million (GOV.UK: calculating a loss). It pays tax on £1 million and carries £2 million forward. A company with profits of £5 million or less is not affected by the restriction.

Terminal loss relief

When a company stops trading, a loss made in its final 12 months of trade can be carried back against profits of the 3 years before the loss-making period (CTA 2010 s39). Where an accounting period falls partly inside the final 12 months, the loss is apportioned by time.

GOV.UK's terminal loss guidance also describes a separate relief for losses carried forward from 1 April 2017 into the final accounting period, set against profits of up to 3 years before the end of that period.

Group relief

Two companies are in the same group for group relief when one is the 75% subsidiary of the other, or both are 75% subsidiaries of a third company (CTA 2010 s152). A trading loss, an excess of capital allowances and a non-trading deficit on loan relationships can be surrendered in full. Qualifying charitable donations, UK property business losses, management expenses and non-trading losses on intangible fixed assets can be surrendered only above a profit-related threshold (HMRC manual CTM80110).

The claim and surrender go on CT600C (GOV.UK: CT600C). See CT600 supplementary pages.

Losses that follow other rules

• Capital losses can be set only against chargeable gains, of the same or a later period, and cannot be carried back (GOV.UK: terminal, capital and property income losses).
• A UK property business loss is set against other profits of the same period, cannot be carried back, and carries forward while the property business continues (GOV.UK).
• Carried-forward property losses from 1 April 2017 count towards the same £5 million allowance and 50% restriction (GOV.UK).

Questions