Company loss relief
Finance Act 2025 · 2025/26
1 Trading loss claims
In this TX lecture: Loss carry-back involving accounting periods shorter than 12 months is not examined in FTX; use the full-year terminal-loss example in these notes.
2 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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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
Compare relief at the available tax rates. Group relief is excluded from FTX.
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%
3 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 ceases trading on 31 March 2026 with a trading loss of £97,000 from its final 12 months. Other total profits are £10,000 in the year ended 31 March 2026, £34,000 in the year ended 31 March 2025 and £28,000 in the year ended 31 March 2024. The preceding year ended 31 March 2023 has no profits. There are no donations. All accounting periods are 12 months. Show the terminal loss relief.
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4 Property losses and Capital losses
A property loss automatically reduces total profits before donations in the current AP; unused loss carries forward against future total profits, with partial claims possible.
It is not a capital loss.
Capital losses offset gains only and unused amounts carry forward; they never reduce trading/property/interest income.
No group relief or non-trading loan deficit computations are examined.
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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5 Repayments and cessation
Recompute the earlier period’s TTP and corporation tax after the permitted loss claim. Repayment=tax originally paid−revised tax. Do not merely multiply loss by 25% if marginal relief/rates change.
Terminal trading losses from the last 12 months can be carried back 36 months after current-period use, relieving the latest eligible profits first. Identify eligible trading-loss periods and remaining profits.
When the trade ceases, trading losses carried forward can no longer be used; consider terminal relief. Capital losses remain available against future gains. Property losses remain available while the company still has a property business.
Lina Ltd paid 19% tax on TTP £40,000 in its preceding 12-month AP. The next AP has trading loss £30,000 and other total profits £10,000, no donations. Claim current relief and carry back excess. Compute the repayment.
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Mei Ltd has current total profits £50,000, donations £5,000 and available carried-forward trade loss £60,000. Find a claim preserving the donations.
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Noah Ltd has a final 12-month trading loss £60,000 on cessation and no other current profits. Eligible total profits of the three preceding 12-month periods, newest first, are £20,000, £30,000, £40,000. Allocate the terminal claim.
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6 Reliefs across the company computation
The applicable exemptions and reliefs are used in chapters 15–18: exempt dividends, capital allowances, qualifying donations, indexation/rollover and the appropriate trade/property/capital loss claims. Check each source separately, then bring only the taxable amounts into TTP. No new standalone planning regime is required.
Deepak Ltd has trading profit £30,000, property loss £8,000, chargeable gains £10,000 and capital losses brought forward £4,000. No donations. Compute TTP.