How does carry back of trading losses work?
Answered 11 March 2026
Here is a comprehensive answer on how carry back of trading losses works for companies under UK corporation tax.
What the law says
The basic rule — CTA 2010, s.37
A company that makes a trading loss in an accounting period may claim relief by deducting that loss from its total profits (including chargeable gains) of:
- The loss-making period itself (current year relief); and then
- Previous accounting periods, but only so far as they fall (wholly or partly) within the 12 months ending immediately before the loss-making period begins.
A company cannot claim to carry back losses without first setting them off against profits of the current period. The amount used in the carry-back must be the lesser of the total losses available or the total profits of that 12-month period.
Order of relief
Where losses from different accounting periods are all being carried back, losses from the earliest accounting period are relieved first.
Time limit for claims
A claim must be made within two years after the end of the loss-making period, or within such further period as HMRC may allow.
Restriction: trades carried on wholly outside the UK
A company may not make a carry-back claim if, in the loss-making period, it carries on the trade wholly outside the United Kingdom.
Terminal losses — extended three-year carry back
A three-year carry back is allowed for trading losses incurred in the final year of trading (i.e. terminal losses). For individuals, s.89 ITA 2007 similarly allows terminal trade loss relief to be deducted against profits of the trade for the final tax year and the 3 previous tax years.
Remaining losses
Any losses not relieved in the current period or carried back are available for carry forward against future trading income of the same trade.
HMRC guidance / practice
Sequence of steps
HMRC confirms that a company must first set off losses against current-period profits before carrying back any remainder. The carry-back is then made against profits of the preceding 12 months. Any losses still unused are carried forward.
Practical example (from HMRC guidance)
A company makes trading losses of £15,000 in its 12-month accounting period ending 30 November 2024. It makes a claim for relief to offset the losses against profits of £10,000 in its previous 12-month accounting period ending 30 November 2023. The remaining £5,000 losses are then carried forward for future relief.
No cherry-picking
Relief is given against total profits, including chargeable gains. A company cannot choose to restrict the claim to cover only specific items of income or gains.
Interest consequences
When a loss is carried back to an accounting period falling wholly within the previous 12 months, there are no late payment interest consequences. However, where the carry-back extends beyond 12 months (e.g. a terminal loss), TMA 1970, s.87A(6) ensures that late payment interest continues to run on the notional unpaid CT liability up to the due date of the later (loss-making) accounting period.
Claims
So far as possible, claims should be made in the company's Corporation Tax Self Assessment (CTSA) return.
Summary table
| Feature | Standard carry back | Terminal loss carry back |
|---|---|---|
| Statutory basis | CTA 2010, s.37(3)(b) | CTA 2010, s.37 / ITA 2007, s.89 |
| Period | 12 months before loss period | Up to 3 years before loss period |
| Set against | Total profits (incl. gains) | Profits of the trade only (individuals) |
| Current year relief first? | Yes — mandatory | Yes |
| Time limit for claim | 2 years from end of loss period | 2 years from end of loss period |
Citation sources
Under CTA2010/S37, a company may claim to carry back trading losses against profits of previous periods, to the extent that they cannot be set off against profits of the same accounting period (see CTM04500 onwards). Under S37(3)(b) this is restricted to accounting periods falling within the period of 12 months ending immediately before the loss making period begins. FA2009/Sch 6 provides a temporary extension of the carry-back of trading losses for accounting periods ending between 24 November
Legislation restricts the carry back of companies’ trading losses and non-trading deficits dealt with under the loan relationship rules to one year. Non-trading deficits that are carried back can only be set against non-trading profits arising from loan relationships or derivative contracts. A three-year carry back is allowed for trading losses incurred in the final year of trading.
In general, a trading loss carried back to an Accounting Period (AP) falling wholly within the previous 12 months has no interest consequences for the receiving AP and therefore needs no special treatment in COTAX, because the loss of the donating AP takes the interest effective date (EDP) of the recipient AP. The only exception to this is if you are changing the rate at which the tax is charged. See COM50113 for further guidance. A trading loss carried back to an AP falling beyond the previous
Part 4 Loss relief Chapter 2 Trade losses Terminal trade loss relief Carry back of losses on a permanent cessation of a trade 89 1 A person may make a claim for terminal trade loss relief if the person— a permanently ceases to carry on a trade in a tax year (“the final tax year”), and b makes a terminal loss in the trade (see section 90). 2 The claim is for the total amount of terminal losses made in the trade by the person (“the relievable loss”) to be deducted in calculating the person's net i
Relief for a company’s trading losses against other profits is at CTA10/S37. For other ways of giving relief for losses see CTM04050. A company can claim to set off trading losses against its total profits: of the accounting period in which the loss was incurred, and if the claim requires, to carry back the losses against profits of preceding accounting periods (CTM04510). So far as possible claims should be made in the company’s CTSA return (CTM90600 onwards). For claims see CTM04580 and for ac
The loss available for carry-forward is: • the loss sustained, less • any part of that amount for which relief has been allowed against current year profits or carried back to earlier under CTA10/S37 (CTM04500 onwards) or surrendered as group relief under CTA10/PART5 (CTM80100 onwards). For accounting periods ending on or after 30 September 1993 a company does not have to make a claim to carry forward trade losses for set-off against future trading income of the same trade. Relief is given again
Part 4 Loss relief Chapter 2 Trade losses Relief in loss-making period and carry back relief Relief for trade losses against total profits 37 1 This section applies if, in an accounting period, a company carrying on a trade makes a loss in the trade. 2 The company may make a claim for relief for the loss under this section (but see subsection (5)). 3 If the company makes a claim, the relief is given by deducting the loss from the company's total profits of— a the accounting period in which the l