‘Corporation Tax loss carry back explained’ - there probably aren’t that many people (except our wonderful accountants) who get excited by an article with this title.

But if you’re a Limited Company owner making a trading loss, you might just want to hold-your-horses before you click away. As the contents of this article could have you leaping for joy!

We're exploring Corporation Tax losses carry back - a tax relief that could enable you to reclaim some of the Corporation Tax you paid in previous profitable years, and get a handy cash refund when you need it most.

Running a business isn’t always a straight line upwards. Some years you’re popping bottles to celebrate profits, in others you’re sipping mugs of builder’s tea at the losing team’s cafe. 

Hence, anything that can help you maintain a healthy cashflow is always a welcome and valuable business boost. Let’s find out how Corporation Tax losses carry back can do this for you and how you can claim it.

What is ‘Corporation Tax loss carry back’?

Essentially, Corporation Tax loss carry back lets your company use a trading loss from the current year to offset profits from a previous year. Instead of waiting to use that loss against future profits, you can “carry it back” and get a refund of Corporation Tax you’ve already paid.

It means you can turn today’s bad year into a silver lining for last year’s tax bill.

Example:

• Last year your company made a £30,000 profit and paid Corporation Tax on it.
  
• This year you made a £20,000 trading loss.
  
• By carrying that loss back, you can offset it against last year’s profit, reduce last year’s taxable profit to £10,000, and claim back the difference in tax.
  

It’s a smart way to boost your company’s cashflow when you need it, and much quicker than waiting to carry losses forward into future profits.

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Who can claim Corporation Tax losses carry back?

This relief is designed specifically for Limited companies that have made a trading loss. So if your business is a Limited Company and you’ve had a tough year, you could be eligible to carry that loss back and reclaim some of the Corporation Tax you’ve already paid.

However, bear in mind:

• It’s about trading losses only – things like day-to-day running costs, not capital losses from selling assets.
  
• Sole Traders and partnerships don’t use this scheme – they have their own version of loss relief through Income Tax.
  
• If you’re part of a group of companies, there may be extra rules and restrictions to consider.
  
  

Basically,  if you’re running a Limited Company and you’ve been profitable in the past but made a loss this year, there’s a good chance you can benefit from carrying that loss back.

How far back can you carry losses?

In most cases, you can only carry trading losses back one year. That means if your company made a loss this year, you can set it against the profits you made in the previous year to claim a refund of Corporation Tax.

There have been times when the government extended this rule – for example during the COVID-19 pandemic, when companies could carry losses back three years. But under normal circumstances, the rule is a simple one-year carry back.

The only active exception to the 1 year loss carryback rule is related to closing companies. In the closing set of accounts, any losses made can be carried back up to 3 earlier accounting periods.

*Note that timing affects how far back you can carry losses*. If you’ve had profits in the past, but not in the immediate prior year, you won’t be able to carry your current loss that far back. In that case, you’d either carry the loss forward to offset against future profits, or explore other forms of relief.

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How to claim relief with Corporation Tax loss carry back - 5  steps

Claiming Corporation Tax loss carry back is fairly straightforward, but it does need to be done properly to make sure you get the refund you’re entitled to. 

These are the steps involved:

1. Work out your trading loss‍

Start by preparing your company accounts and tax computations to confirm the exact amount of loss for the period.
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‍2. Decide how to use the loss‍

You can choose to carry it back against the previous year’s profits, or carry it forward to offset against future profits. If cashflow is tight, carrying it back often makes more sense.

3. Make the claim in your Company Tax Return (CT600)‍

The claim is usually included in your CT600, with clear figures showing how the loss is set against the earlier year’s profits. If you’ve already filed your Corporation Tax return, you can make a separate claim in writing instead.

4. Provide supporting details‍

HMRC will expect you to show the amount of loss, the period it relates to, and the profit figures it’s being carried back against. Clear calculations help speed things up.

5. Wait for your refund‍

Once HMRC processes your claim, they’ll issue a repayment of the Corporation Tax you overpaid. This can provide a welcome cash boost just when you need it.

Don’t forget though, there’s a deadline! Generally, you need to make your claim within two years of the end of the accounting period in which the loss was made

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The benefits of carrying back losses

Carrying back your corporation tax losses can give your business some real advantages. Check out this summary below:

Turning losses into wins

Losses aren’t something any business owner looks forward to, but they don’t have to be all bad news. With Corporation Tax losses carry back, you could turn a difficult year into a tax refund, giving your company a valuable cash injection and easing the strain on your finances.

The key is making sure your claim is accurate, submitted on time, and works in your company’s best interests. 

At Crunch, we handle the whole process for you – from calculating your losses to preparing the claim and making sure you don’t miss out on valuable relief. We’ll also advise whether carrying losses back or forward is the smarter option for your business strategy.

So, if you’ve had a tough trading year, don’t just write it off. Let Crunch help you reclaim what’s yours and get your business back on the front foot.

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