Corporation tax loss relief

How to use trading losses to reduce your company's corporation tax bill. Covers carry-back, carry-forward, group relief, terminal loss relief, and anti-avoidance rules.

UK-wide
Guide summary

If your company makes a trading loss, you can use it to reduce your corporation tax bill. Options include carrying back losses to previous years, carrying forward to future years, or sharing losses within a group. Plan ahead to maximise relief.

  • Carry-back losses up to 12 months for immediate tax repayment
  • Carry-forward losses indefinitely while trade continues
  • Share losses with group companies (75%+ common ownership)
  • Claim terminal relief for 36 months if ceasing trade
  • £5 million allowance before 50% restrictions apply
  • Submit claims within 2 years of loss-making period
  • Capital losses can only offset capital gains
  • HMRC may deny relief for avoidance arrangements
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If your company makes a trading loss, you can use it to reduce corporation tax on profits from other periods. Understanding the options helps you maximise tax relief and improve cash flow.

Key principle: Losses are a valuable asset. Plan how to use them before they arise where possible, and preserve them when considering company changes.

Loss relief options overview

Choosing the right option

SituationBest Option
Made profit last year, loss this yearCarry-back for immediate tax repayment
Expect future profitsCarry-forward for future relief
Group company profitableGroup relief for current year
Ceasing to tradeTerminal loss relief (36-month carry-back)
Multiple sources of profitCurrent year relief against other profits

Carry-back rules

Carrying losses back gives an immediate tax repayment if you paid tax in earlier periods.

Claiming carry-back relief

To claim, include the loss in your CT600 corporation tax return. You can:

  • Claim the full loss (mandatory offset) or
  • Claim part of the loss (preserve some for carry-forward)

Time limit: Claim within 2 years of the end of the loss-making accounting period.

Example: Company makes £100,000 loss in year ending 31 March 2025. It can carry back against profits from year ending 31 March 2024, receiving a tax repayment.

Carry-forward rules

Losses can be carried forward indefinitely while the trade continues.

Understanding the restriction

From 1 April 2017, carried-forward losses are restricted:

  • First £5 million: Full relief available
  • Above £5 million: Only 50% of remaining profits can be relieved

Example: Company has £10 million profits and £8 million carried-forward losses:

  • £5 million deductions allowance: Full £5 million loss used
  • Remaining profits: £5 million
  • 50% restriction: £2.5 million more loss used
  • Total relief: £7.5 million (not £8 million)
  • £500,000 losses still to carry forward

Good news: This only affects about 1% of companies with profits over £5 million.

Group relief

Companies in a group can share losses.

How group relief works

  1. Loss-making company "surrenders" losses
  2. Profitable company "claims" the losses
  3. Both companies must agree to the surrender
  4. Claim reduces the profitable company's tax liability

Ownership test: Must be 75% subsidiary relationship (direct or indirect).

Payment for group relief: The claiming company typically pays the surrendering company for the tax value of losses. This payment is ignored for tax purposes if at or below the tax value.

Capital losses

Key difference: Capital losses can only reduce capital gains - they cannot reduce trading profits. This makes capital gains planning important before disposing of assets.

Terminal loss relief

Extended relief is available when a company ceases to trade.

Planning for cessation

If you know your company will cease trading:

  • Consider timing of final accounting period
  • Accelerate losses into final period if possible
  • Maximise terminal loss relief claim (36 months, not restricted)
  • Consider MVL for tax-efficient extraction of remaining assets

Anti-avoidance rules

HMRC can deny loss relief if arrangements are designed to exploit losses.

What triggers the rules

The anti-avoidance rules bite when:

  1. There's a change in ownership (>50% of shares), AND
  2. Within 5 years (before or after), there's a major change in the trade's nature or conduct

Examples of "major change":

  • Completely different product or service line
  • Different customer base
  • Different location with different market
  • Scale reduced significantly then revived after acquisition

What happens: Losses from before the ownership change cannot be used against post-change profits.