Advanced Taxation (UK) · Corporation tax: the comprehensive calculation of the corporation tax liability, including overseas aspects

Loss Relief for Companies in ACCA ATX-UK

Updated 11 October 2026 · Fact-checked

Loss relief for companies lets a trading loss reduce taxable profits. You can set it against the current period, carry it back, carry it forward, or surrender it to group companies. Each route has rules and limits. In ATX you must pick the option that saves the most tax, usually at the main rate.

Understand Loss Relief for Companies

A company that makes a trading loss pays no corporation tax on that trade for the period. The loss is not wasted. The tax system lets you use it against other profits, so that you pay less tax now or get a repayment.

There are four main routes. First, current period set-off against the company's total profits of the same accounting period. Second, carry back of the loss against total profits of the previous 12 months. Third, carry forward against future profits. Fourth, group relief, where a loss is surrendered to another group company to use against its profits.

The current period claim comes first. You cannot claim carry back without it. Both current and carry-back claims are made against total profits, so gains and property income can be reduced as well as trading profit. Carry-forward relief uses later profits and is automatic unless the loss has been used elsewhere.

The key skill is choosing. Look at the rates: the small profits rate is 19% and the main rate is 25%, with marginal relief between £50,000 and £250,000 of profits. Relief at 25% beats relief at 19%. Timing matters too, as earlier relief gives a quicker cash benefit. Limits on how much carried-forward loss can be used also apply for larger profits.

On cessation, a terminal loss arises in the final 12 months of trading. It can be carried back against total profits for the previous 3 years, latest first, rather than only 12 months. Always check the dates in the question.

Key rules to remember

Current period claim: Loss set against total profits of the same accounting period; Made before any carry back. Not limited to trading profits.
Carry back (non-terminal): Loss left after current claim → total profits of the previous 12 months; Needs a current period claim first, which may be for the full amount of the available profits.
Terminal loss carry back: Loss of the last 12 months of trading → total profits of the previous 3 years, latest first; Only on cessation of trade. Check that the loss arises in the final 12 months.
Carry forward: Unrelieved loss → future profits of the company; Used automatically against later profits unless other claims apply. Limits can apply on large profits.
Group relief: Surrenderable loss = lower of surrendering company's loss and claimant's profits for the matching period; Applies between members of a 75% group. Periods must be matched, and the claimant's profits are limited to the overlap.
Marginal relief: (£250,000 − Augmented profits) × 3/200 × Taxable total profits ÷ Augmented profits; Use to check the effective tax rate on profits between £50,000 and £250,000.

How to solve Loss Relief for Companies questions

Use this approach whenever a question mentions a trading loss, group, or a company that stops trading.

1List each accounting period with its trading result, property income, gains and other income. Convert to total profits and note any period under 12 months.
2Work out the loss and decide when it arose. Check whether the trade is ceasing so the terminal loss rules might apply.
3Identify the available relief options: current period, carry back, carry forward, group relief. Check the group relationship and period matching.
4Calculate the tax saved under each option at the relevant rate: 19% small profits, 25% main rate, or the effective marginal rate between £50,000 and £250,000 (adjusted for associated companies and short periods).
5Choose the option with the best result, allowing for timing. Remember the current period claim is required before carry back.
6Show the revised taxable total profits and the corporation tax liability after relief, and state what loss is left to carry forward.
7Write a short recommendation and mention any caveats, such as claim time limits or lost use of charges.

Quickest way: Rate comparison shortcut

When to use it: When time is short and the question asks which loss relief option is best.

Write down the rate of tax each option saves: group relief against a 25% company, carry back against a 19% year, and so on.
Rank the options by rate, then by how soon the cash is received.
Allow for limits: the claimant's profits, 12 months or 3 years for carry back, matching of periods for group relief.
State the best choice and the tax saved, then the loss left over.

Common mistakes in Loss Relief for Companies

Claiming carry back without a current period claim
Students go straight to the earlier year because it looks more valuable.
Fix: Always show the current period claim first, then the carry back of the balance.
Using the 12-month carry back for a terminal loss
The standard rule is remembered and the cessation rule is missed.
Fix: If the trade has ceased, apply the 3-year carry back, latest year first, using the loss of the last 12 months.
Surrendering more loss than the claimant can use in group relief
The overlap of accounting periods is ignored.
Fix: Time-apportion both the loss and the claimant's profits to the matching period and use the lower figure.
Applying the rate wrongly when profits fall between £50,000 and £250,000
Students assume 19% or 25% without checking marginal relief.
Fix: Compute the tax before and after the loss, using marginal relief where profits are in the band.
Forgetting that a current year or carry back claim can waste the personal use of other deductions
Students treat the loss as an item that only reduces trading profit.
Fix: Remember the claim reduces total profits, so other deductions such as qualifying charitable donations may be left unrelieved. Show the effect.

Worked examples

Example 1

Kite Ltd has the following results. Year to 31 March 2025: taxable total profits £180,000. Year to 31 March 2026: trading loss £60,000 and no other income. Kite Ltd has no associated companies. Advise on the carry back claim and calculate the corporation tax saved.

Show the solution

Current period: there are no profits in the year to 31 March 2026, so the current claim is nil and the whole £60,000 loss is available to carry back.
Carry back: the loss is set against total profits of the previous 12 months, which is the year to 31 March 2025. The profits become £180,000 − £60,000 = £120,000.
Tax before the claim: £180,000 × 25% = £45,000. Marginal relief = (£250,000 − £180,000) × 3/200 × 180,000 ÷ 180,000 = £70,000 × 0.015 = £1,050. Tax = £43,950.
Tax after the claim: £120,000 × 25% = £30,000. Marginal relief = (£250,000 − £120,000) × 3/200 = £130,000 × 0.015 = £1,950. Tax = £28,050.
Tax saved = £43,950 − £28,050 = £15,900.

Answer: Carry back the full £60,000 loss to the year to 31 March 2025, saving corporation tax of £15,900. No loss remains to carry forward.

Example 2

Orion Ltd has traded for years and ceases to trade on 31 March 2026. Its adjusted trading results are: year to 31 March 2026 loss £40,000. Year to 31 March 2025 taxable total profits £30,000 (including trading profit of £30,000). Year to 31 March 2024 taxable total profits £70,000. Calculate the effect of terminal loss relief and the corporation tax saved. Orion Ltd has no associated companies.

Show the solution

Current period: there are no other profits in the final year, so the current claim is nil. The terminal loss is £40,000.
Carry back to the latest year first: the year to 31 March 2025 profits of £30,000 are reduced to nil, using £30,000 of the loss. £10,000 remains.
Tax saved in the year to 31 March 2025: profits are £30,000, below £50,000, so the rate is 19%. £30,000 × 19% = £5,700.
Carry back the remaining £10,000 to the year to 31 March 2024. Profits fall from £70,000 to £60,000.
Tax before: £70,000 × 25% = £17,500. Marginal relief = (£250,000 − £70,000) × 3/200 = £180,000 × 0.015 = £2,700. Tax = £14,800.
Tax after: £60,000 × 25% = £15,000. Marginal relief = (£250,000 − £60,000) × 3/200 = £190,000 × 0.015 = £2,850. Tax = £12,150.
Saving in the year to 31 March 2024 = £14,800 − £12,150 = £2,650.
Total saving = £5,700 + £2,650 = £8,350.

Answer: The whole £40,000 terminal loss is used: £30,000 against the year to 31 March 2025 and £10,000 against the year to 31 March 2024. Total corporation tax saved is £8,350.

Exam tips

Read the dates first. Whether a loss is a terminal loss or an ordinary loss depends on cessation and on the last 12 months.
Show a short comparison table of relief options with the tax saved by each, then give a clear recommendation. This earns the professional skills marks for analysis and judgement.
In group questions, match accounting periods and say which company should claim, using the 75% group test and the rate of tax of each company.
Show the marginal relief working when profits fall between £50,000 and £250,000, because the supplied formula is part of the tax tables.
State the effect on unused deductions and on the amount of loss carried forward, so the marker can see the full position.

Practice questions from Corporation tax: the comprehensive calculation of the corporation tax liability, including overseas aspects

Loss Relief 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 Applied SkillsTrading Loss Reliefs for Companies

Loss Relief for Companies: frequently asked questions

What is the difference between group relief and carry forward of losses?

Group relief moves a loss to another company in a 75% group to use against its profits in the matching period. Carry forward keeps the loss in the same company for use against its own future profits. Group relief can give a faster tax saving, especially when the claimant pays tax at 25%.

When can a company use terminal loss relief?

A company can use it when it ceases to trade. The loss of the final 12 months can be carried back against total profits of the previous 3 years, latest year first. This is longer than the normal 12-month carry back.

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

Yes. A carry back claim only works after the loss has first been set against total profits of the current period. If there are no profits in that period, the current claim is nil and the full loss is carried back.

Which loss relief option is best in the ATX exam?

It is the option that saves the most tax, allowing for timing. Compare the rates at which relief is given, including marginal relief between £50,000 and £250,000. Then state the choice and explain why.