Using trading losses to reduce your Corporation Tax

Short version. If your company made a trading loss in an earlier year that you haven’t used yet, you can usually set it against this year’s trading profit, which lowers the Corporation Tax you owe. In SimpleCompanyTax you enter the figure in Tax adjustments → “Trading losses brought forward”, and we apply it for you. You can’t use more loss than you have profit, and anything you don’t use this year simply carries forward again.

1. What a trading loss is

Your company makes a trading loss when its allowable trading costs (cost of sales and day-to-day running expenses) are more than its trading income for the year. A loss isn’t wasted. HMRC lets you keep it and use it to reduce tax in a year when you do make a profit.

If your company makes a loss this year, SimpleCompanyTax reports it automatically and it’s available for future years, so you don’t need to do anything special. This article is about the other direction: using a loss from a previous year against this year’s profit.

2. “Carried forward” vs “brought forward”: same loss, two views

These two phrases trip a lot of people up. They describe the same pot of unused losses, just from different years:

• Carried forward means looking forwards from the year the loss happened: “we made a £10,000 loss in 2023/24, so we carry £10,000 forward.”
• Brought forward means looking back from the year you use it: “we’re bringing forward £10,000 of losses from earlier years into 2024/25 to set against our profit.”

So a loss you carried forward from last year is the same figure you bring forward into this year. That’s the number you enter.

3. How a brought-forward loss reduces your tax

A brought-forward trading loss is set against your trading profit for the year, before the tax is worked out. A worked example:

• Trading profit this year: £50,000
• Trading losses brought forward: £30,000
• Profit chargeable to Corporation Tax: £20,000 (£50,000 − £30,000)
• Corporation Tax at 19%: £3,800 instead of £9,500, a £5,700 saving

A couple of sensible limits apply automatically:

• You can’t use more loss than you have trading profit. If you bring forward £30,000 but only made £20,000 profit, we use £20,000 and the remaining £10,000 carries forward again to a future year.
• The relief is set against your trading profit only. Other income such as bank interest is taxed as normal. A trading loss doesn’t reduce it.

4. Where to enter it in SimpleCompanyTax

In the wizard, on the figures step, open Tax adjustments and fill in “Trading losses brought forward” with the total unused trading losses you’re bringing into this year. Leave it as 0 if you have none. The live Corporation Tax estimate updates as you type, so you’ll see the effect straight away, and the figure flows through to your CT600.

5. How to find your figure

The amount to enter is your company’s cumulative unused trading losses. You can find it from:

• your previous tax computation, under “Losses carried forward to the next period”. This is the best source, and every filing we produce includes one. If you filed with us last year, the figure is in the tax computation PDF in your documents,
• your company’s HMRC online account (Corporation Tax), which shows losses carried forward, or
• your accountant, if they hold your loss records.

Do not read the figure off box 780 of last year’s CT600. That box is headed “amount arising”, so it shows the loss that was made in that period, not the running total you still have available. The two are only the same in the rare case where a company made a loss, used none of it, and had nothing brought forward. Use the tax computation instead.

Enter the amount you actually want to use this year (you can’t use more than your profit). If you’re unsure of the figure, it’s safest to check your records or ask your accountant, because HMRC holds the official record of your losses.

6. What’s covered (and what isn’t)

SimpleCompanyTax supports the common case: trading losses brought forward, set against this year’s trading profit. We don’t currently handle:

• Carrying a loss back to an earlier year (claiming a refund against last year’s tax), see Loss carry-back claims and Corporation Tax refunds,
• setting a brought-forward trading loss against non-trading income (e.g. using it to cover bank interest), and
• group relief, or losses from other companies.

Capital losses are supported, but they are a different thing and live in a different place. A capital loss comes from selling an asset for less than it cost, and it can only be set against chargeable gains, never against trading profit. Enter those with your gains rather than here, see chargeable gains when a company sells a property or investment. Property losses are supported too and are more generous than trading losses, because they can reduce your total profits, see property income and losses.

If your situation needs one of those, an accountant can file it for you. For most micro-entities with a single trade, the brought-forward relief above is exactly what’s needed.

Related: What is a CT600? · How to file company tax