Corporation Tax Losses: How to Carry Them Forward

A bad year does not have to be wasted. If your limited company makes a loss, the tax system usually lets you use that loss to reduce Corporation Tax in other periods. The rules have conditions, and the details matter, so this guide explains the principle, the options, and what you need to do to claim.

Key takeaways

• A trading loss can usually be carried forward against future profits of the same trade.
• There are also options to use a loss against other income or earlier profits in some cases, with conditions.
• You claim losses through your Company Tax Return, so accurate accounts matter.
• Losses can be restricted if ownership and trade change together.
• Check current rules and any limits on GOV.UK, because relief rules have changed over time.

What is a Corporation Tax loss?

A Corporation Tax loss usually arises when your company's allowable trading costs exceed its taxable income for an accounting period. Costs include things like wages, rent, software, and capital allowances on equipment. The loss is a tax calculation, which can differ from the loss shown in your accounts because some accounting costs are not tax deductible. For the official explanation see GOV.UK's guidance on Corporation Tax losses.

Your main options

Carry the loss forward

The simplest route. The loss sits on file and is set against profits of the same trade in later periods, reducing the tax due. For a start-up that loses money in year one and turns a profit in year two, this is often the most relevant relief. Where profits are large, some restrictions on how much you can use in a year may apply. Check the current position on GOV.UK.

Set against other profits in the same period

In some cases a trading loss can be set against other profits of the same accounting period, such as interest or property income. This depends on the nature of the loss and the company's activities.

Carry the loss back

In certain circumstances a loss can be carried back to an earlier period and produce a refund of tax already paid. Time limits and caps can apply, so take advice before relying on this.

Options at a glance

How to claim

1. Prepare accurate accounts for the loss-making period.
2. Work out the tax-adjusted loss, adding back non-deductible costs.
3. Report the loss on the Company Tax Return and make the relevant claim.
4. Keep a running record of unused losses to bring into later returns.

Deadlines matter. Review the filing dates in our guide to company accounts deadlines.

Worked example (illustrative)

"Nadia", an illustrative example, runs a new limited company that invests heavily in its first year and makes a tax-adjusted trading loss. She files her Company Tax Return, reports the loss and chooses to carry it forward. In year two the same trade makes a profit. The brought-forward loss reduces that profit before Corporation Tax is calculated, so the bill is lower than it would have been. If Nadia had not reported the loss properly in year one, she would have no clear record to rely on later. The key lesson is to claim and track losses carefully, not to assume they apply automatically.

Interaction with marginal relief and rates

Losses reduce taxable profit, and the profit level affects which Corporation Tax rate applies. If you are near a band boundary, losses brought forward can change the outcome. Our guide to marginal relief explains how profit levels affect the rate.

Common mistakes

• Assuming the accounting loss equals the tax loss. Tax adjustments often change the figure.
• Not filing a return for a loss-making year. You still need to file, and the loss must be reported to be used later.
• Losing track of brought-forward losses. Keep a schedule each year.
• Changing the trade without advice. Anti-avoidance rules may restrict loss use.
• Mixing personal and company expenses. Non-business costs are not part of the company's loss.

We prepare Company Tax Returns and keep a clear loss schedule for our clients. See our Corporation Tax service or contact us to discuss your company.