Corporation Tax Losses: Carry Back, Carry Forward or Terminal Relief

A company can set a trading loss against its profits of the previous 12 months, provided it ran the same trade. If tax was paid on those profits, HMRC refunds it with interest. Example: a company loses £30,000 this year after a £45,000 profit last year taxed at 19%; carrying back gives a refund of £5,700. In a group, losses can also be surrendered to other group companies.

Any loss not carried back is carried forward against future profits. Sometimes it pays to carry it forward deliberately. If last year's profit was taxed at 19% but next year's will be over £250,000 and taxed at 25%, a £30,000 loss saves £7,500 going forward against £5,700 going back. Weigh the bigger saving against waiting longer for the cash.

If the company ceases trading, the loss in its final 12 months can be carried back against profits of the previous three years, latest year first. Example: a final-year loss of £60,000, with profits of £20,000 last year, £25,000 the year before and £30,000 the year before that, is set against £20,000, then £25,000, then £15,000 of the earliest year, producing refunds plus interest. The relief must be claimed.