One of our clients, Jerry, has a company that made a loss this year due to the effects of Coronavirus. He’s asked “Can I carry forward a corporation tax trading loss?”
Firstly, why would a business would want to carry forward a trading loss? If the business owner is confident of making a profit next year, then they can reduce the tax bill by offsetting this years loss against next years profit.
Corporation Tax relief may be available where a company or organisation makes a trading loss. The loss is used to claim relief from Corporation Tax. We do this by offsetting the loss against other gains or profits of the business in the same or the previous accounting period.
Can I carry forward a corporation tax trading loss? Yes, the loss can also be used against future trading profits. Any claim for trading losses forms part of the Company Tax Return. You can work out the trading profit (or loss!) for Corporation Tax purposes by making the usual tax adjustments to the figure of profit or loss shown in a company’s annual accounts.
There are some basic requirements for a trading loss to be set off against other income sources. These include:
- being within the charge to Corporation Tax
- the trade must be carried on a commercial basis and with a view to the realisation of profit
- at least some of the trade must be carried out within the UK
The rules for the Corporation Tax treatment of carried forward losses changed from 1 April 2017. The changes increased flexibility to set off carried forward losses against total profits of the same company. Remember, any losses carried forward prior to 1 April 2017 fall under the old loss relief rules.