Corporation Tax Loss Relief Guide
Corporation Tax loss relief and carry-back rules in the UK: Section 37 claims, 1-year carry-back tax refunds, post-2017 loss flexibility, and terminal loss relief.
In one sentence
UK limited companies can offset trading losses against prior year profits under Section 37 to claim a Corporation Tax refund or carry them forward to set against future profits.
Quick answer
- Section 37 allows trading losses to be carried back 12 months to claim a Corporation Tax refund
- Unused losses carry forward indefinitely to offset against future total profits
- Terminal Loss Relief allows final 12-month trading losses to carry back up to 3 years
- Loss claims must be submitted on CT600 within 2 years of the accounting period end
Corporation Tax Loss Relief and Carry Back Rules
If your UK limited company experiences a trading loss during an accounting period, HMRC rules allow you to offset that loss against taxable profits to reduce your Corporation Tax liability or secure a cash tax refund.
Under Section 37 of the Corporation Tax Act 2010, companies have flexible choices for how and when to apply trading losses.
How Corporation Tax loss options work
When your company incurs a net trading loss, you can choose from three main relief options:
- Offset Against Current Year Profits: Set the loss against any other non-trading income or capital gains in the same accounting period.
- Carry Back to the Preceding 12 Months: Carry the remaining loss back against total taxable profits of the preceding 12-month accounting period to claim a refund of Corporation Tax previously paid.
- Carry Forward to Future Periods: Carry unused trading losses forward to set against future trading profits in subsequent accounting periods.
Worked example: Corporation Tax carry-back refund
Scenario:
- Year 1 (Profit): £60,000 profit (Company paid Corporation Tax at 19% = £11,400).
- Year 2 (Loss): £40,000 trading loss.
- Action: Claim Section 37 loss carry-back on Year 2 CT600 return.
- Outcome: Year 1 taxable profit is reduced from £60,000 to £20,000. HMRC refunds £7,600 of Year 1 Corporation Tax directly to the company bank account.
Post-April 2017 loss flexibility rules
For losses incurred on or after 1 April 2017, UK loss relief rules became significantly more flexible:
- Broadened Offset Scope: Carried-forward losses can now be set against total profits (including investment income and capital gains), not just future trading profits from the same trade.
- Loss Restriction for Large Groups: For large corporate groups, carried-forward losses can offset 100% of profits up to the £5 million group allowance, and 50% of profits above £5 million.
Terminal Loss Relief (Ceasing Trade)
If your limited company permanently stops trading, special Terminal Loss Relief rules apply:
- Trading losses incurred in the final 12 months of trading can be carried back up to 3 years (36 months) preceding the start of the final period.
- Losses are set against profits of later years first before moving to earlier years.
How to claim loss relief on your CT600 return
Corporation Tax loss relief must be formally claimed on your company's annual CT600 Corporation Tax return:
- Record current-year losses in the calculation section (Box 780).
- Enter the amount carried back to prior periods in Box 275.
- Submit bank details on the return for HMRC to process your tax refund via direct BACS transfer.
Filing Deadline: You must make a Section 37 loss relief claim within 2 years of the end of the accounting period in which the loss occurred.
Read our guide on Corporation Tax rates and marginal relief or see how our Corporation Tax advice service prepares your CT600 loss claims.
Has your limited company made a loss?
Book a 20-minute call with an experienced UK accountant. We will review your previous tax filings, calculate your maximum carry-back refund, and submit your CT600 loss claim.
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