It is a routine thing for businesses operating in today’s competitive markets to suffer a setback of declining sales or losing customers to a competitor due to varying reasons. The ultimate financial consequence of these setbacks is the loss incurred by the business. Loss relief claim for corporation tax purposes can be real help during a dismayed situation like this.

This relief can be claimed in two ways. One way is to offset the loss amount against the past profit (previous accounting period) made within the same business (not just same trade)*. Another way is to carry it forward to offset it against the future profits. The amount of loss carried back or forward is called the adjusted loss.

Following example demonstrates the way adjusted loss is used for corporation tax relief:

Profit for year ending on 30th Apr 2018£15,000
Corporation tax at 19%£2,850
Lose incurred for the year end on 30th Apr 2019(£2,500)
Carryback of above loss to the year end on 30th Apr 2018(£2,500)
New/amended amount of profit for year-end 30th Apr 201812,500
Corporation tax at 19%2,375
Corporation tax repayment due £475

HMRC sets the time limit to claim the loss relief for corporation tax as 2 years after the end of relevant accounting period unless you are claiming Terminal Loss Relief. Our next blog Corporation Tax – Part 4 will cover the topic of Terminal Loss Relief.

Claim Process 

The process of claim is to either carry it back to April 2018 and offset it against the profits. Alternatively, you can choose to amend the original return and bring back the loss incurred in April 2019.

One vital point to be noted here is about the total amount being claimed under loss relief. In the case where total amount of loss incurred is more than the profits made in prior year, it is possible to claim the part amount and carry the remaining forward to next accounting periods.

*Please note that since 1 April 2017, it is possible to claim loss from one trade and offset it against the profits from another trade, in the same accounting period, carried out under the same limited company. It was not allowed prior to 1 April 2017.

At UGS Accountants, we offer specialised advice and support to new and developing small businesses. We recognise the importance of how different each business and its needs can be. For this reason, we proactively work with you to make the structuring of business, preparation of your accounts, bookkeeping, VAT and tax return a highly beneficial process, not merely a statutory one.