Trading and other Losses – Companies
1 Trading losses
If a company makes a trading loss, its trading income assessment for that period to include in the corporation tax computation is NIL
Loss relief
The trading loss may then be relieved as follows:
in the current period against total profits before qualifying charitable donations (QCDs),
after relief in the current period, any excess loss can be carried back 12 months to an earlier period(s) against total profits before QCDs, and/or
be carried forward to relieve against future total profits before QCDs.
Note that if a company wishes to carry back a loss then it MUST firstly use the loss in the current period; i.e. a current period claim can be made on its own, but a carry back claim cannot.
For both the current period and the carry back claims, partial claims are not allowed; i.e. the claim is 'all or nothing' and may result in QCDs being unrelieved.
For a carry forward claim, partial claims are allowed which means that the loss relief can be restricted to leave sufficient profits to relieve QCDs.
Current period and carry back reliefs must be claimed within 2 years of the end of the accounting period in which the loss arose.
A claim for carry forward relief must be claimed within 2 years of the end of the accounting period in which the relief is claimed.
current period relief
A Ltd had the following results for the year ended 31 March 2026:
£ | |
Trading loss | (45,000) |
Interest receivable | 20,000 |
Chargeable gain | 50,000 |
Qualifying charitable donations | 15,000 |
Show how current period relief would be obtained in the year ended 31 March 2026.
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current period relief followed by carry back relief
B Ltd has produced the following recent results:
Year ended 31 March | |||
2024 | 2025 | 2026 | |
£ | £ | £ | |
Trading profit / (loss) | 30,000 | 60,000 | (90,000) |
Interest receivable | 10,000 | 10,000 | 10,000 |
Show how loss relief would be claimed assuming that relief is taken as soon as possible.
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Loss making period of less than 12 months
The length of the loss-making period is not important:
Full relief is given against the current period total profits before QCDs.
The remaining loss can be carried back in full in the normal way.
Short accounting periods prior to year of loss
A trading loss is carried back against total profits of the previous 12 months.
If the accounting period preceding the period of loss is short, the loss should be carried back for a full 12 months on a LIFO basis.
The profits of the earlier period must be time apportioned.
C Ltd has the following results:
y/e | 9 months to | y/e | |
31/3/25 | 31/12/2025 | 31/12/2026 | |
£ | £ | £ | |
Trading profit/(loss) | 25,000 | 20,000 | (40,000) |
Bank interest | 3,000 | 1,000 | 1,000 |
Chargeable gains | - | 5,000 | – |
Qualifying charitable donations | (500) | (500) | (500) |
Show the Taxable Total Profits for all accounting periods, assuming loss relief is taken as soon as possible.
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D plc had the following results since it started trading on 1 April 2022:
y/e | y/e | y/e | y/e | |
£ | £ | £ | £ | |
Trading profit / (loss) | 40,000 | 20,000 | (63,000) | 20,000 |
Property Income | 3,000 | 3,000 | 3,000 | 3,000 |
Interest receivable | 4,000 | 3,000 | 5,000 | 3,000 |
Qualifying charitable donations | (1,000) | (1,000) | (1,000) | (1,000) |
Show how losses will be relieved on the assumption that any relief is to be taken as soon as possible.
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Choice of relief
One of the most important factors to be taken into account when considering loss relief claims will be the rate at which tax relief can be claimed. Also see Chapter 21 - Groups.
Other important factors to consider when choosing which loss relief(s) to claim will include the cash flow benefit of achieving relief at the earliest available opportunity, and/or avoid wasting any QCDs.
Therefore, the options available to an ongoing company to relieve a trading loss are as follows:
Carry forward only
Current period then carry back 12 months*
Current period then carry back then carry forward (this option will relieve the loss as soon as possible)
*When a company ceases to trade, the carry back period is extended to 36 months but again, a current period claim must be made first (see later).
For the year ended 31 March 2026 Anchor Ltd made a trading loss of £120,000. Anchor Ltd has made no qualifying charitable donations, has no associated companies and receives no dividends. The company’s total profits are:
Year end 31 March | 2025 | 2026 | 2027 (Forecast) |
£ | £ | £ | |
Total profits | 390,000 | 75,000 | 320,000 |
Although Anchor Ltd has augmented profits of between £50,000 and £250,000 for the year ended 31 March 2026 (FY25), the average rate of tax will actually be less than 25% because of marginal relief.
Any claim to offset the trading loss in the current year, the year ended 31 March 2026 would be an all or nothing claim for £75,000. Also, extending the loss relief claim to the previous year, the year ended 31 March 2025, would save corporation tax at the rate of 25%.
However, a carry forward claim will save the following amount of corporation tax:
Year ending 31 March 2027 (with no loss relief) | £ |
Total profits | 320,000 |
Tax at 25% x £320,000 | 80,000 |
Year ending 31 March 2027 (with loss relief) | |
Total profits | 320,000 |
Less trading loss carried forward | (120,000) |
Taxable total profits | 200,000 |
Tax at 25% x £200,000 | 50,000 |
Less marginal relief: £(250,000 - 200,000) x 3/200 | (750) |
Corporation tax | 49,250 |
Therefore the tax saved is: £(80,000 - 49,250) = £30,750, which means that the average rate of tax saved on the £120,000 loss is: £30,750/£120,000 = 25.625%
For illustration purposes only:
Note that if TTP = augmented profits, if the corporation tax is calculated on a 'slice by slice' basis like income tax, then it can be shown that the rate of tax in the marginal band is 26.5% as follows:
£ | |
£50,000 (up to the lower limit) x 19% | 9,500 |
£150,000 (balancing figure) has resulted in tax of: | 39,750 |
Corporation tax on £200,000 | 49,250 |
Therefore, the rate of tax on profits falling in the marginal band is £39,750/£150,000 = 26.5%
2 Trading losses on cessation
Losses in the final twelve months of trading - Terminal Loss Relief
The carry back period is extended to 36 months for losses incurred in the twelve months prior to the cessation of trading. Losses can be carried back (after a current period claim) against total profits before deduction of qualifying charitable donations of the 36 months preceding the loss making period on a LIFO basis.
E Ltd ceased trading on 31 March 2026. It had the following results for the five accounting periods to 31 March 2026:
y/e 30/9/2022 | 6 months to 31/3/2023 | y/e 31/3/2024 | y/e 31/3/2025 | y/e 31/3/2026 | |
£ | £ | £ | £ | £ | |
Trading profit/(loss) | 10,000 | 16,000 | 20,000 | 32,000 | (97,000) |
Bank interest | 2,000 | - | 2,000 | 2,000 | 2,000 |
Chargeable gains | - | - | 6,000 | - | 8,000 |
Qualifying charitable donations | 500 | - | 500 | 500 | - |
Show the Taxable Total Profits for all accounting periods after claiming terminal loss relief.
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3 Property losses and Capital losses
Property losses are relieved:
by setting them against total profits before QCDs in the current period. This relief is automatic and partial claims are not allowed, then any excess can be either:
carried forward to offset against future total profits (partial claims are allowed), or
Group relieved
Capital Losses are relieved against current period chargeable gains ONLY and any excess are then carried forward against net chargeable gains in future accounting periods. Capital losses can never be relieved against income.
Avanti Ltd has the following results for the year ended 31 March 2026:
£ | |
Trading losses | (145,000) |
Property losses | (62,000) |
Interest receivable on building society deposit | 87,000 |
Chargeable gain | 22,000 |
Qualifying charitable donation | (2,400) |
At 1 April 2025 Avanti Ltd had a trading loss brought forward of £40,000 and a capital loss of £10,000.
Calculate the TTP of Avanti Ltd for the year ended 31 March 2026 assuming it wants to use its losses as soon as possible (to the extent that this is beneficial) and stating (if relevant) the amount of any losses carried forward at 1 April 2026.
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Snake Ltd had the following recent results:
y/e 30/6/2023 | y/e 30/6/2024 | y/e 30/6/2025 | y/e 30/6/2026 | |
£ | £ | £ | £ | |
Trading profit/(loss) | 250,000 | 300,500 | (500,000) | 200,000 |
Property income/(loss) | (13,500) | 45,000 | 40,000 | 35,000 |
Chargeable gain/(loss) | 6,000 | (12,000) | 11,000 | 5,000 |
QCDs | (12,000) | (12,000) | (12,000) | (12,000) |
Show the TTP for all years assuming relief for the losses is to be taken as soon as possible.
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Losses can be regularly examined as either a MCQ as follows:
Or as part of a larger Section B/C question.
Remember that adjusting profits is the same procedure as with sole traders except for a few rules (see earlier chapters) as is the capital allowances computation (without private use assets).
So you may be required to do one of these calculations with a resulting overall loss - say in part (a) and then you may be asked what reliefs are available in part (b) - which is writing out the rules and then in part (c) asked what tax saving could be made by claiming loss relief.
Learn the rules, stop and think and apply your knowledge to the specifics of the question.