Loss Carry Back in the UK: How Companies Claim a Tax Refund
If your company makes a trading loss, you can carry it back and set it against profits from the previous 12 months, which can produce a Corporation Tax repayment. The condition is that the company carried on the same trade in that earlier period, and the claim normally has to be made within two years of the end of the loss-making period. This guide explains how it works, when a longer carry back applies, and how to claim.
TL;DR
A company can carry an unused trading loss back against profits of the preceding 12 months, if it ran the same trade then.
A terminal loss, made when a company stops trading, can go back up to three years.
The three-year carry back for 2020 to 2022 was temporary and applied only to accounting periods ending between 1 April 2020 and 31 March 2022.
Claim within two years of the end of the loss-making period, and expect any Corporation Tax you still owe to be netted off first.
Carry back gives a refund on past profits. Carry forward reduces future profits. Group relief moves the loss to another group company.
Table of Contents
What loss carry back means for a company
Carry back lets a company treat a trading loss as if it had arisen earlier, so it wipes out profits that were already taxed. HMRC then repays the tax paid on those profits. HMRC’s guidance on claiming a Corporation Tax loss says a company may carry back an unused trading loss if it carried on the same trade in a period within the preceding 12 months.
The same-trade test is set in section 37 of the Corporation Tax Act 2010. The Act also says relief is not available if the trade is carried on wholly outside the United Kingdom during the loss-making period.
In practice, carry back suits a company that was profitable last year and has hit a bad one. Think of a business that paid Corporation Tax on a good year, then invested heavily, lost a major client or took a seasonal hit. A start-up that has never made a profit has nothing earlier to carry back against, so its loss is usually carried forward instead.
How the 12-month carry back works
The loss is set against profits of the 12 months before the start of the loss-making accounting period. Where an earlier accounting period only partly falls inside that window, the profits are apportioned and only the overlapping part can be offset, as the HMRC guidance explains.
A simple illustration, with invented figures:
Year to 31 March 2025 | Year to 31 March 2026 | |
Trading result | £80,000 profit | £50,000 loss |
Corporation Tax paid | Paid on the £80,000 | None |
Carry back claim | Loss set against the £80,000 | |
Profit left taxed | £30,000 |
The company would ask for repayment of the tax on the £50,000 that is now relieved. Any Corporation Tax it still owes is deducted from the repayment first.
If losses from more than one period are carried back, they are relieved in the order they were made, starting with the earliest, under the same Corporation Tax Act 2010 provisions.
Terminal losses: up to three years back
When a company ceases to trade, the loss of its final period can go back further. A terminal loss can be carried back up to three years against total profits, according to HMRC’s Company Taxation Manual at CTM04510.
The Act also contains an anti-avoidance rule. Section 41 disapplies the extended relief where the cessation forms part of a scheme whose main purpose is to secure it. A genuine closure is a different matter, and if you are winding a company down, our directors’ checklist for striking off a UK company covers the filings to get right first.
The temporary three-year rule for 2020 to 2022
You may see references to a three-year carry back and a £2,000,000 cap. That was a temporary measure. It extended the 12-month rule to three years for accounting periods ending between 1 April 2020 and 31 March 2022, capped at £2,000,000 of losses for each relevant financial year, according to HMRC’s manual at CTM04510.
That window has closed. For a loss in any current period, the standard 12-month rule applies, apart from terminal losses.
How to make a claim and by when
A claim should be made within two years of the end of the loss-making period. It should state the company name, the loss period, the loss amount and how the loss is to be used, as HMRC’s guidance sets out.
A practical sequence:
Finalise the accounts for the loss-making period and compute the trading loss.
Check that the company carried on the same trade in the earlier period.
Work out how much profit was taxed in the preceding 12 months, apportioning if a period straddles the boundary.
Make the claim in the Company Tax Return for the loss period, with the details above.
Check your Corporation Tax payment position, because any amount owed is offset against the repayment.
Two cautions. First, HMRC’s CTSA guidance warns that companies generally cannot obtain repayments based on anticipated future losses until the loss-making accounting period has ended. Forecasting a loss does not entitle you to a refund early. Second, if you miss the deadline, HMRC can sometimes allow late claims. Its manual gives the example of a company that was unaware of the profits it could claim against when the deadline passed, which is a reason beyond its control. Do not plan around that: file on time.
For how the return itself fits together, see our Corporation Tax return guide for directors.
Carry back, carry forward or group relief?
The three routes do different jobs:
Route | What it does | Best when |
Carry back | Offsets the loss against past profits for a refund | You paid tax last year and need cash now |
Carry forward | Sets the loss against future profits | There is no earlier profit, or you expect strong years ahead |
Group relief | Surrenders the loss to another company in the same group | Another group company has taxable profit |
The distinction between them is drawn in HMRC’s loss guidance. Carried-forward losses are claimed in the Company Tax Return (CT600) by completing the relevant box, as CTM04860 explains. Under loss reform, companies can choose how to use some carried-forward losses, and certain claims are due within two years of the end of the relief period.
For group structures, our guide to group relief and the 75% test walks through the CT600C workflow. If you are weighing wider options, see how to reduce your Corporation Tax bill legally.
Choosing the right relief
Cash matters more than tidy tax positions for most small companies, so ask these questions in order:
Was there taxed profit in the previous 12 months from the same trade? If not, carry back is not available.
Do you need the cash now? A carry back claim can bring a repayment, whereas carry forward only helps once you are profitable again.
Is the company in a group? Group relief may use the loss more efficiently.
Are you closing the company? Check whether the terminal loss rules apply.
The answer can change the tax in two or three years, so model the options before the return is filed rather than after.
Perspective
Most founders we meet find out about loss relief after the return is filed. By then the choice between carry back, carry forward and group relief has often been made by default. Our view is that the loss should be planned for while the year is still open. Keeping bookkeeping current through the year means the loss is known and can be compared with last year’s taxed profit as soon as the period ends. That is how a claim is made on time and with the right figures. We built our service around this. We combine digital tools that keep records accurate with experienced accountants, many of whom have worked at top firms in the UK and the Middle East, who look at your position proactively instead of just filing it. Shoaib
How Keystone can help
We handle day-to-day bookkeeping, year-end accounts, Corporation Tax returns and tax planning for UK founders, start-ups and growing businesses, so a loss claim is worked out and filed correctly alongside everything else. Our flexible accounting packages are published at £99-£199 per month.
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If your company has had a loss year and you want to know whether a refund is possible, see our services at Keystone Financial Advisory.
FAQ
Can a new company carry back a loss?
Only if it carried on the same trade in the preceding 12 months and paid tax on profits in that period. A first-year company has no earlier profits to offset, so its loss normally goes forward instead.
How long do I have to claim?
A claim should generally be made within two years after the end of the accounting period in which the loss arose. HMRC can sometimes accept late claims, but you should not rely on that.
Is the three-year carry back still available?
Not for ordinary losses. The three-year extension applied to accounting periods ending between 1 April 2020 and 31 March 2022. Terminal losses on cessation of trade can still go back up to three years.
Do I get the refund immediately?
Not automatically. Any Corporation Tax you still owe is deducted first, and HMRC generally will not repay on an anticipated loss until the loss-making period has ended.
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