Carried Forward Trading Losses: Maximise Your Relief Options

What Are Carried Forward Trading Losses?

When your limited company makes a trading loss in an accounting period, HMRC allows you to carry that loss forward and set it against future trading profits from the same trade. This reduces the taxable profit in later years and, in turn, lowers your Corporation Tax liability. It sounds straightforward, but there are important rules and restrictions that directors need to understand to use this relief effectively.

The Basic Rules for Carrying Losses Forward

Trading losses arising from 1 April 2017 onwards can be carried forward and set against total profits — not just trading profits. This was a significant change introduced by the Finance Act 2017, and it gives companies considerably more flexibility. Pre-April 2017 losses, however, can only be offset against profits from the same trade.

• Post-April 2017 losses can be used against total profits, including non-trading income and chargeable gains.
• Pre-April 2017 losses must be offset against future profits from the same trade only.
• There is no time limit on carrying losses forward — they can be used indefinitely until fully relieved.
• You must continue to carry on the same trade for the losses to remain available.

The Deductions Allowance and the 50% Restriction

Since April 2017, a 50% restriction applies to the amount of carried forward losses that can be offset in any single accounting period. This means that if your company has profits of £1 million, only 50% — £500,000 — can be sheltered by carried forward losses. The remaining £500,000 will still be subject to Corporation Tax.

However, every company receives a Deductions Allowance of £5 million per year. This means the 50% restriction only applies to profits above £5 million. For the vast majority of small and medium-sized companies, the restriction will have no practical impact — your full carried forward losses can be used without limitation.

How to Claim the Relief

You claim carried forward trading losses through your Company Tax Return (CT600). You'll need to complete the relevant loss relief section, specifying the amount of loss being carried forward and the amount being relieved in the current period. HMRC does not automatically apply the relief — you must actively claim it.

• Keep accurate records of all losses in each accounting period.
• Ensure your CT600 clearly shows brought-forward losses and the amount being relieved.
• Work with your accountant to decide whether to use losses now or preserve them for a period when profits — and therefore tax savings — are higher.

Alternative Loss Relief Options to Consider First

Carrying losses forward isn't always your only option, and it isn't always the best one. Before defaulting to a carry-forward, consider these alternatives:

• Carry back against the previous year's profits — If you made a profit last year, you can offset this year's loss against it and potentially receive a Corporation Tax repayment. This provides an immediate cash benefit.
• Group relief — If your company is part of a group, losses can be surrendered to profitable group companies in the same period, providing immediate relief across the group.

Watch Out: The Changing Trade Rule

Your carried forward losses can be lost entirely if there is a major change in the nature or conduct of your trade within three years of a change in ownership. HMRC can disallow the losses if it determines the trade has fundamentally changed. This is particularly relevant if you've recently acquired a company with large historic losses — those losses may not be usable.

Practical Next Steps

If your company is sitting on carried forward trading losses, now is a good time to review your position. Check your CT600 filings to confirm the losses are correctly recorded, model out when you expect to return to profit, and speak to a tax adviser about whether carrying losses forward or claiming an alternative relief gives you the best overall outcome. Unused losses are a valuable asset — make sure you're treating them that way.