UK trading loss carry-forward relief lets a business set a past trading loss against profits in later periods, so tax falls on long-term profitability rather than on a single good year that follows a bad one. The mechanics split cleanly in two: companies paying Corporation Tax follow rules in the Corporation Tax Act 2010, and sole traders and partners follow the Income Tax Act 2007. Companies with losses arising on or after 1 April 2017 can offset carried-forward losses against total profits, while sole traders remain restricted to profits from the same trade. Statutory caps and anti-avoidance rules can then limit how much of the loss you actually get to use in a given year.
How Carry-Forward Works for Companies
Companies carry forward trading losses under the Corporation Tax Act 2010, and the scope of relief depends on when the loss arose. Losses generated in accounting periods beginning before 1 April 2017 can only be carried forward against future profits of the same trade. A retail loss from 2015 cannot reduce profits from a consulting arm the company launched later; older losses are tethered to the activity that produced them.
Losses arising in accounting periods beginning on or after 1 April 2017 are more flexible. On a claim, they can be deducted from the company’s total profits in a later period, meaning income from all sources including interest, rental income, and gains from other trades within the company. The company must still be carrying on the trade, and the claim is made in the Corporation Tax return for the period in which the loss is being used.1Legislation.gov.uk. Corporation Tax Act 2010 – Carry Forward of Trade Loss Relief
The practical difference matters most for companies that have diversified since a loss arose. A company that made losses in one trade before April 2017 but now earns most of its income from a different activity will find those older losses stranded. Post-April 2017 losses give corporate groups real flexibility to match historical losses against wherever their current profits sit.
The Corporate Loss Restriction
Even with carried-forward losses on the books, a company cannot wipe out its entire tax bill in one go. Part 7ZA of the Corporation Tax Act 2010 caps relief: a company can use carried-forward losses against up to 100% of the first £5 million of profits in an accounting period, but only 50% of any profits above that threshold.2Legislation.gov.uk. Corporation Tax Act 2010 – Part 7ZA
The £5 million figure is a deductions allowance that applies per company, or per group if the company belongs to a corporate group. Where several companies sit within the same group, they share a single £5 million allowance and must allocate it among themselves.3GOV.UK. Corporation Tax – Restriction on Relief for Carried-Forward Losses A large group with ten subsidiaries does not get £50 million of unrestricted relief; it gets £5 million to divide however it chooses, with the 50% cap applying above that level.
Take a company with £20 million of carried-forward losses and £12 million of current-year profit. It can offset the first £5 million in full, then only half of the remaining £7 million, which is £3.5 million. That leaves £3.5 million of taxable profit even though the company still has unused losses on the balance sheet.
Group Relief for Carried-Forward Losses
Since 1 April 2017, a company within a corporate group can surrender its carried-forward losses to another group member if the group relationship test is met. One company must be a 75% subsidiary of the other, or both must be 75% subsidiaries of a third company. The 75% threshold is based on beneficial ownership of ordinary share capital, with additional tests for entitlement to profits and to assets on a winding-up.4GOV.UK. Company Taxation Manual – CTM80151
The mechanics require the surrendering company to consent, the two companies to share an overlapping accounting period, and the group condition (or one of several consortium conditions) to be satisfied throughout the relevant period. A company cannot surrender its carried-forward losses to a group member if the claimant company has its own unused carried-forward losses that it has not yet fully deducted from its profits. The claimant must exhaust its own losses first.5Legislation.gov.uk. Corporation Tax Act 2010 – Claiming Group Relief for Carried-Forward Losses
Group relief does not sidestep the £5 million and 50% caps. Surrendered losses count toward the recipient company’s share of the deductions allowance and its 50% ceiling.
Change of Ownership: The Anti-Avoidance Trap
Part 14 of the Corporation Tax Act 2010 targets buyers who acquire a loss-making company mainly to harvest its accumulated losses. The rule applies where there is a change in the company’s ownership and, within a five-year window straddling the change (starting no more than three years before), a major change in the nature or conduct of the trade. A major change includes shifts in the type of products or services the company provides, or significant changes to its customer base, outlets, or markets.6Legislation.gov.uk. Corporation Tax Act 2010 – Part 14
A second trigger applies where the trade has already become dormant or negligible in scale before the ownership change and no significant revival has occurred. In either case, losses arising before the change cannot be carried forward against profits after the change. HMRC can also look at the cumulative effect of incremental changes rather than requiring a single dramatic event.
This is where acquisitions quietly go wrong from a tax perspective. Buyers sometimes assume that purchasing a company with substantial carried-forward losses means an immediate tax windfall, only to find that plans to redirect the company into a new line of business trigger the disqualification. If the post-acquisition trade bears little resemblance to what came before, the losses die with the old business model.
Carry-Forward for Sole Traders and Partnerships
Sole traders and partners in a partnership carry forward trading losses under sections 83 to 85 of the Income Tax Act 2007. The scope is narrower than the corporate rules: carried-forward losses can only be set against future profits of the same trade, not against other income such as employment earnings, rental income, or bank interest. Close one business and start an entirely different one, and losses from the first cannot follow you into the second.7Legislation.gov.uk. Income Tax Act 2007 – Part 4 Chapter 2
The relief is claim-based. You must actively claim it in your Self Assessment return, and HMRC expects the loss to be used against the earliest available trade profits. You cannot stockpile a loss for a more tax-efficient year down the road if the trade is already generating profits. There is no time limit on how long carried-forward losses survive, but they remain locked to the specific trade.
Sideways relief, which lets you offset a trading loss against your other income in the same tax year, is a separate mechanism with its own cap of the greater of £50,000 or 25% of adjusted total income.8GOV.UK. HS204 Limit on Income Tax Reliefs Carry-forward relief is not subject to that cap, but because it only offsets profits of the same trade, it offers less flexibility in a year where most of your income comes from other sources.
Watch the Personal Allowance
Carried-forward trading losses are deducted at Step 2 of the income tax calculation in section 23 of the Income Tax Act 2007, before the personal allowance is applied at Step 3.9Legislation.gov.uk. Income Tax Act 2007 – Part 2 Chapter 3 This ordering matters. If your only trade profit in a year is £15,000 and you carry forward a £15,000 loss, the loss wipes out the trade profit entirely. Your personal allowance then has nothing left to shelter, and you effectively waste it for that year.
For sole traders with modest profits in early recovery years, this interaction can sting. You end up using valuable loss relief to eliminate income that would have been tax-free anyway under the personal allowance. There is no mechanism to preserve the personal allowance by reducing the loss claim; the carry-forward must be applied against available trade profits.
Terminal Loss Relief When the Trade Ends
When a trade is permanently discontinued, both companies and individuals can access terminal loss relief, which reverses the direction of travel and carries the final losses backward rather than forward.
For companies, section 39 of the Corporation Tax Act 2010 extends the normal 12-month carry-back to three years when a trade ceases. The terminal loss covers losses made in accounting periods falling wholly or partly within the final 12 months of trading. Any loss from an accounting period that straddles the start of that final 12-month window is apportioned based on how much of the period falls within it.10Legislation.gov.uk. Corporation Tax Act 2010 – Part 4
For sole traders, section 89 of the Income Tax Act 2007 provides equivalent relief. When an individual permanently ceases a trade, terminal losses can be set against profits of the same trade in the final tax year and the three preceding tax years.11Legislation.gov.uk. Income Tax Act 2007 – Section 89 The deduction is restricted to trade profits only, not total income, and relief must be applied to the most recent year first before moving to earlier years.12GOV.UK. BIM85055 – Trade Losses – Types of Relief: Terminal Loss Relief
This is the last chance to extract value from accumulated losses. Close the business without claiming, and those losses disappear permanently. For companies sitting on large carried-forward loss balances that were being slowly absorbed under the 50% restriction, cessation unlocks the three-year carry-back as a final route.
Making the Claim
Companies claim carried-forward loss relief through the CT600 Corporation Tax return, entering the figures in the designated trade loss boxes. The claim forms part of the annual return for the accounting period in which the losses are being used, not the period in which they arose, so there is no separate application.13GOV.UK. Work Out and Claim Relief from Corporation Tax Trading Losses
Sole traders and partners report losses and claim carry-forward relief through Self Assessment. The main form is the SA100 return, with the self-employment pages on form SA103 (short version for turnover below the VAT threshold, or the full version for larger businesses).14GOV.UK. Self Assessment: Self-Employment (Short) (SA103S) The loss amount and any carry-forward balance go in the relevant boxes on those supplementary pages.
Records need to be exact. You need the loss figure, the accounting period it relates to, the balance remaining after any prior claims, and supporting accounts that reconcile with the numbers on the return. HMRC can open an enquiry if the figures on the return do not match the underlying business accounts.
Carry-back claims (for example, terminal loss claims by a company) must be made within two years of the end of the accounting period in which the loss arose.13GOV.UK. Work Out and Claim Relief from Corporation Tax Trading Losses Carry-forward claims do not have the same hard deadline because they are made in the return for the later period when the losses are actually being used. But carried-forward losses can still be lost permanently: a change of ownership paired with a major change in the trade will disqualify them for a company, and a sole trader who permanently ceases the trade without claiming terminal loss relief will lose whatever remains.