Many companies will make a trading loss at some point, its part of being in business. When it happens how can you claim tax relief and get a corporation tax refund? the three main ways are as follows:
1. Carry the Trading Loss Forward
The most common way is for Trading losses to be offset against profits from the same trade in future accounting periods. You don’t have to make any claim for this to happen. It’s done automatically when you complete your Corporation Tax Return.
This method means you get your refund in the future by paying less tax in future years.
2. Carry the Trading Loss Back
Instead of carrying a loss forward, you can claim for the loss to be offset against profits for the preceding 12-month period (not accounting period). But you can only do this if your company or organisation was carrying on the same trade at some point in the accounting period or periods that fall in the preceding 12-month period.
You can make a claim to carry back a trading loss when you submit your Company Tax Return for the period when you made the loss.
Your claim should normally be made in your return or in an amendment to a return.
If you’re too late to make your claim in your return or return amendment for an accounting period, you can make your claim in a letter. A claim should be made within two years of the end of the accounting period when you made the loss. Your claim should include:
- the name of your company or organisation
- the period when the loss is made
- the amount of the loss
- how the loss is to be used
When you amend a return previously submitted and paid and it results in an overpayment you should be able to claim a cash refund.
3. Terminal Loss
If your company or organisation stops trading, you may be able to claim Terminal Loss Relief. This allows you to carry back any trading losses that occur in the final accounting period to be set off against profits made in any or all of the previous three years. But for each year, you can only offset the loss against the profits in that year if your company or organisation was carrying on the same trade at some point in the accounting period or periods that fall in that year.
This gives you three years rather than one to offset the loss against.
Click here for more details from HMRC