Taxation (UK) · The use of exemptions and reliefs in deferring and minimising corporation tax liabilities

Trading Loss Reliefs for Companies: Carry Back, Carry Forward and Terminal Relief

Updated 11 October 2026 · Fact-checked

A company trading loss can be set against total profits of the same period, then carried back 12 months, or carried forward against future total profits. On cessation, a terminal loss from the last 12 months can go back 3 years. You choose the claim that saves most tax, earliest.

Understand Trading Loss Reliefs for Companies

A company makes a trading loss when its tax-adjusted trade result, after capital allowances, is negative. Tax relief is not automatic. You must claim it, and each claim has its own conditions and time limit.

The first route is current period relief. You set the loss against the company's total profits of the same accounting period. Total profits include income and chargeable gains. This is quick, but it uses the loss before qualifying charitable donations, so the donations can be wasted.

The second route is carry back. After a current period claim, any unrelieved loss can be carried back against total profits of the previous 12 months. Later periods come first. If the previous period is only partly within the 12 months, you only use the matching fraction of its profits. A carry back claim is only possible if you have first made the current period claim.

The third route is carry forward. You can instead, or for what is left over, set the loss against total profits of future periods. You get relief later, so it is usually less valuable. It is sensible when past profits are low or taxed at low rates.

Finally, terminal loss relief applies when the trade ceases. The loss of the last 12 months of trading is carried back against total profits of the previous 3 years, later periods first. This is extra to the ordinary 12-month carry back. The most tax-efficient claim saves tax at the highest rate and soonest.

Key rules to remember

Current period relief: Loss set against total profits of the loss-making accounting period; Claim needed. Made before qualifying charitable donations are deducted.
Carry back (non-terminal): Unrelieved loss → total profits of the previous 12 months, latest first; Only after a current period claim. Time-apportion the earlier period if it falls partly outside the 12 months.
Carry forward: Unrelieved loss → total profits of future accounting periods; Claim needed. Relief is delayed.
Terminal loss: Loss of final 12 months of trade → total profits of previous 3 years, latest first; Final 12 months run back from cessation. Time-apportion periods that straddle the start of this window.
Tax saved by a claim: Profits relieved × the corporation tax rate they would have borne; Rates: small profits rate 19%, main rate 25%, limits £50,000 and £250,000. Marginal relief applies between them.
Claim time limit: Within 2 years of the end of the loss-making accounting period; State this in written answers.

How to solve Trading Loss Reliefs for Companies questions

Use this method for any company loss question, whether it asks for the computation or the best claim.

1Compute the trading loss for the period. Make sure you have used the adjusted figure after capital allowances.
2List the total profits of the loss period: trading income (nil), property income, interest and chargeable gains.
3Apply the current period claim and deduct it before qualifying charitable donations. Note the loss remaining.
4Set out profits of the previous 12 months, latest first, and time-apportion if needed. Apply the carry back to what remains.
5Consider the carry forward for any unrelieved loss, and the tax rate (19%, 25% or marginal relief) applying to each option.
6If the trade ceases, calculate the terminal loss for the final 12 months and carry it back up to 3 years, later periods first.
7Recompute taxable total profits for each period and state the tax saved, then recommend the best claim.
8Mention the 2-year claim deadline and that claims are optional.

Quickest way: Loss ladder shortcut

When to use it: In Section C when profits for several periods are given and you need a clear layout quickly.

Draw a column for each period: loss year, previous year, then earlier years if terminal.
Write total profits in each column before any loss.
Fill the current claim, then carry back in order latest first, until the loss is used.
Write the revised taxable total profits and the tax saved in one line at the bottom.
Check that the total relief equals the original loss, or note the carried forward balance.

Common mistakes in Trading Loss Reliefs for Companies

Carrying back before making a current period claim.
Students go straight to past profits because they are taxed.
Fix: Always show current period relief first. The carry back only takes what is left.
Using the carry back for more than 12 months on an ordinary loss.
Confusion with the 3-year terminal rule.
Fix: Ordinary carry back is 12 months. Only the final 12 months of a ceased trade go back 3 years.
Ignoring time apportionment of earlier periods.
Students treat the full profit of a straddling period as available.
Fix: Take only the months inside the window. For example, 6 of 12 months means half of that period's profits.
Wasting qualifying charitable donations.
Loss relief is deducted before donations, so they may have no profit left.
Fix: Note the effect and say that donations cannot be carried forward or back.
Relieving the earliest period first on a terminal claim.
Students work in date order.
Fix: Always work backwards from the latest period.
Choosing a claim without comparing tax rates.
Students claim the biggest amount, not the most valuable.
Fix: Compare the rate each profit bears. Relief at 25% beats 19%, and consider marginal relief bands.

Worked examples

Example 1

Pine Ltd has a trading loss of £60,000 for the year ended 31 March 2026. It also has property income of £8,000 and a chargeable gain of £12,000 in that year. Its taxable total profits for the year ended 31 March 2025 were all trading profit of £45,000. Show the loss relief available if all claims are made, and the tax saved. Ignore associated companies and marginal relief issues.

Show the solution

Current period: total profits are £8,000 + £12,000 = £20,000. Set £20,000 of the loss against them, so taxable total profits become nil.
Unrelieved loss: £60,000 − £20,000 = £40,000.
Carry back 12 months to the year ended 31 March 2025. Profits are £45,000, so £40,000 is relieved and £5,000 remains taxable.
Tax saved on the carry back: £40,000 × 19% = £7,600, because profits of £45,000 are below £50,000.
The current period claim saves tax on the £20,000 of income and gains of 2026 at 19%, which is £3,800.
No loss is left to carry forward.

Answer: Current period relief of £20,000, then carry back of £40,000. The carry back saves £7,600 and the current claim saves £3,800, so the total saving is £11,400. Claims must be made within 2 years of 31 March 2026.

Example 2

Oak Ltd ceases trading on 30 June 2026. It made a trading loss of £48,000 for the year ended 31 December 2025 and £30,000 for the six months to 30 June 2026. Assume no other income and that no other loss claim has been made. Total profits were £30,000 for the year to 31 December 2024, £40,000 for the year to 31 December 2023 and £35,000 for the year to 31 December 2022. Calculate the terminal loss and show the terminal loss relief and tax saved.

Show the solution

The final 12 months run from 1 July 2025 to 30 June 2026.
Six months of the year to 31 December 2025 fall in this window: £48,000 × 6/12 = £24,000.
Terminal loss: £24,000 + £30,000 = £54,000.
The 3-year carry back window starts on 1 July 2022. Work from the latest period first.
Year to 31 December 2024: relieve £30,000, leaving £24,000 of the loss.
Year to 31 December 2023: relieve £24,000 of the £40,000, leaving nil of the loss. The 2022 period is not needed.
Tax saved: (£30,000 + £24,000) × 19% = £54,000 × 19% = £10,260, because each period's profits were below £50,000.

Answer: Terminal loss £54,000, relieved £30,000 against 2024 and £24,000 against 2023. Tax saved is £10,260. The year to 31 December 2022 is unused.

Exam tips

In Section C, set out a column layout with periods in date order, and show a time-apportionment working when a period straddles the window.
Always state the claim order: current period, then carry back, then carry forward, and for ceased trades the terminal claim.
In objective test questions, watch the keywords '12 months' against '3 years'. They separate ordinary carry back from terminal relief.
When asked for the best claim, compare the tax rate each option reduces and mention that relief sooner is better. Do not just maximise the amount.
Round to the nearest £ and apportion by months, as the exam instructions say.

Practice questions from The use of exemptions and reliefs in deferring and minimising corporation tax liabilities

Trading Loss Reliefs for Companies in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

ACCA Strategic ProfessionalTrading Losses and Relief Options

Trading Loss Reliefs for Companies: frequently asked questions

Can a company carry a trading loss back 3 years?

Only a terminal loss can be carried back 3 years. It is the loss of the final 12 months of a trade that has ceased. An ordinary trading loss goes back only 12 months.

Do I have to claim current period relief before carry back?

Yes. The carry back applies only to the loss left after a current period claim. You cannot skip the current period.

What time limit applies to a company loss claim?

A claim is generally due within 2 years of the end of the loss-making accounting period. State this when the question asks about claims.

Is carry forward or carry back better?

Usually the earliest relief saves tax sooner. But the best claim saves the most tax overall, so compare the rates on the profits involved, including the 25% main rate and marginal relief.