Using corporation tax losses: carry back, carry forward and group relief

Losses are worth money

A trading loss reduces taxable profit — and if there is no current profit to absorb it, you can move it to another period. The loss effectively banks tax relief for when you need it. The trick is choosing the option that releases cash soonest without wasting the relief.

Carrying a loss back

You can usually carry a trading loss back against the previous year's profits, generating a repayment of corporation tax already paid. For a business that had a good year then a bad one, this can produce a welcome cash refund exactly when cash is tight. There are extended carry-back rules in some circumstances.

Carrying a loss forward

Losses not used in the current or prior year carry forward against future profits of the same trade, reducing tomorrow's tax bills. Post-reform rules give more flexibility on how carried-forward losses are used, but very large losses face a restriction above an annual allowance.

Group relief

In a group, a loss in one company can be surrendered to a profitable sister company to reduce that company's tax — group relief. It stops the group paying tax on net profit that does not really exist across the group. The rules on ownership and timing are strict, so plan surrenders carefully.

Cash flow while losses unwind

Relief helps, but a loss-making phase still strains cash before the refund or future saving lands. Short-term finance bridges the trough while the recovery takes hold.

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