A company that makes a trading loss can set it against all its other profits and gains of the same accounting period, and then carry any balance back against total profits of the previous 12 months, under section 37 of the Corporation Tax Act 2010 (CTA 2010). A claim must be made within two years of the end of the loss making period. Whatever is left is carried forward: losses made from 1 April 2017 can usually be set against total profits of later periods on a claim, but losses made before that date can only reduce future profits of the same trade.

How is a company trading loss worked out?

A trading loss is computed in the same way as a trading profit, starting from the accounts and making the usual tax adjustments. HMRC’s guidance on calculating and claiming a loss says capital allowances increase the loss, balancing charges reduce it, and gains or losses on disposals of assets are left out, because those belong in the chargeable gains computation explained in our page on capital gains and losses in a company. Unlike an individual, a company does not choose between several tax years: everything turns on accounting periods, and the rules below apply to each period separately.

Can the loss be set against other profits of the same year?

Yes. Section 37 lets the company claim to deduct the loss from its total profits of the loss making period. Total profits include interest, property income and chargeable gains. HMRC’s manual at CTM04505 says relief is given against total profits and a company cannot choose to restrict the claim to specific items of income or gains. Where losses of more than one period are being used in the same year, the earliest loss is relieved first under section 37(8).

There are limits. No claim is possible for a trade carried on wholly outside the UK (section 37(5)), and section 44 denies relief where the trade is not carried on on a commercial basis with a view to profit. CTM04600 notes that a run of losses alone is not enough for HMRC to challenge relief, but the burden of showing the trade is commercial falls on the company.

How does carry back to the previous year work?

Once the loss has been set against profits of the current period, any excess can be carried back against total profits of accounting periods falling wholly or partly within the 12 months before the loss making period began. Three rules shape the claim:

  • Current year first. CTM04505 states that a company cannot carry losses back without first setting them against profits of the current period.
  • Twelve months, not one accounting period. If an earlier accounting period straddles the start of the 12 month window, its profits are time apportioned and only the part inside the window can be relieved. HMRC’s guidance gives an example where only 6 of 12 months fall inside the window, so only half that period’s £10,000 profit is available.
  • Same trade. The company must have carried on the loss making trade at some point in the earlier period (CTM04510).

Because the earlier period’s tax has often been paid, carry back usually produces a repayment, which is why it is the most valuable use of a loss where the previous year was profitable. A temporary three year carry back with a £2 million cap applied to accounting periods ending between 1 April 2020 and 31 March 2022; it is not available for current losses. Where a trade ceases, the window for losses of the final 12 months extends to three years, as explained in our page on terminal loss relief.

What happens to losses carried forward?

Any part of the loss not used under section 37 or surrendered as group relief is carried forward. The treatment depends on when the loss arose.

Loss made in Section Set against Automatic or claim
Accounting period beginning before 1 April 2017 CTA 2010 s45 Future profits of the same trade only Automatic, but the company can claim not to use it in a period beginning on or after 1 April 2017
Accounting period beginning on or after 1 April 2017 CTA 2010 s45A Total profits of the next period Claim, for all or a specified part
On or after 1 April 2017 but s45A conditions not met CTA 2010 s45B Future profits of the same trade only Automatic, with a claim to disapply

Section 45A has conditions. It does not apply if the trade became small or negligible in the loss making period, or if section 37 relief was blocked, for example by section 44, and the trade must continue into the later period. Where they are not met, section 45B streams the loss against profits of the same trade instead. A section 45A claim must be made within two years after the end of the period in which the loss is used, and a section 45B or 45(4A) claim to disapply relief has the same two year limit. The ability to claim only part of a section 45A loss is useful, for example to leave profits covered by other reliefs.

Carried forward losses are also subject to the cap explained in our page on the corporate loss restriction, although that only bites where profits exceed a deductions allowance of up to £5 million.

Can losses be used by other group companies?

A loss of the current period can be surrendered as group relief to another member of a 75% group instead of being used by the company itself. Under CTM04100, losses made from 1 April 2017 that have been carried forward can also be surrendered as group relief for carried forward losses, but pre 1 April 2017 losses carried forward cannot. Our page on group relief covers the conditions.

How does a loss play out across three years?

Illustration only. A standalone company with 31 March year ends makes a trading loss of £90,000 in the year to 31 March 2026. In that year it has £10,000 of interest income. In the previous year it had total profits of £50,000, and in the year to 31 March 2027 it makes trading profits of £70,000.

  1. Under section 37 the loss is set first against the £10,000 interest of the year to 31 March 2026. This step cannot be skipped.
  2. The company then claims to carry back £50,000 against the year to 31 March 2025, generating a repayment of tax already paid.
  3. The remaining £30,000 is carried forward. As it arose in a period beginning after 1 April 2017, the company can claim under section 45A to set it against total profits of the year to 31 March 2027, and must make that claim by 31 March 2029.

How is the claim made?

Claims are made in the company tax return or an amendment to it, or by letter within the time limit. HMRC’s guidance explains the relevant CT600 boxes for the loss arising and the amount set against total profits, and says a claim should give the company name, the period of the loss, its amount and how it is to be used. Once the time limits for amending the return have passed without an enquiry, CTM04150 says the loss figure becomes final, though HMRC can still enquire into a later return that uses it, for example to test whether the same trade continued.

What mistakes are common?

  • Missing the two year deadline. An officer can allow a longer period, but that is discretionary and should not be relied on.
  • Trying to carry back while sheltering current interest or gains. The current period must be relieved first.
  • Treating every carried forward loss as usable against total profits. Pre 2017 losses, and losses of trades that have become small or negligible, are streamed to the same trade.
  • Overlooking a change of ownership. A sale of the company combined with a major change in the trade can wipe out losses, as explained in our page on change of ownership and loss forfeiture.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

Related Accountapedia entries

Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.