Reliefs for Business Losses
Businesses can access various reliefs when they incur losses. Companies can carry forward certain unused losses to offset future profits. Generally, a company can carry trading losses forward to deduct from future profits as long as the trade continues.
Limitations on Carried-Forward Losses
From 1 April 2017, there are limits on the amount of carried-forward losses that can offset profits. These limits apply to carried-forward trading losses as follows:
- Pre-2017 Losses: Losses incurred before 1 April 2017 can be relieved up to an allowance of £5 million, plus 50% of remaining trading profits after this allowance.
- Overall Losses: Most types of carried-forward losses, whether incurred before or after 1 April 2017, are restricted to an allowance of £5 million, plus 50% of remaining total profits after the allowance.
Claiming Trading Losses
Companies must include any claim for trading losses in their Company Tax Return. The trading profit or loss for Corporation Tax purposes is calculated by adjusting the profit or loss shown in the company’s financial accounts.
Importance of Accurate Reporting
To maximise their tax relief benefits, businesses must accurately report trading losses. They should maintain detailed financial records and, furthermore, consult with tax professionals to ensure compliance with tax regulations. By keeping proper documentation and filing timely, they can effectively manage tax liabilities and fully utilise available reliefs. Consequently, this proactive approach aids in financial planning and supports long-term business sustainability.
