Carry back relief of trading losses

NotesQuizPaper examCBEMock

A trading loss can be deducted from the previous 12 month's Total income

Illustration 1

In 2024 - a trading loss of (£100,000), it had no other income in that year. 
In 2023 - property income of £75,000 and chargeable gains of £35,000

Calculate Total taxable profits.

  • Property income £75,000
    Chargeable gains £35,000
    Total income £110,000

    Less:Trading loss carried back (£100,000)

    Total taxable income £10,000 - this is the amount that corporation tax will be paid on.

The current year total income claim must be made FIRST

Unlike for individuals, the current year total income claim must be made before the claim against total income for the previous 12 months.

Illustration 2

  • In 2024 - a trading loss of (£100,000) and property income of £25,000
    In 2023 - Total income of £200,000

    The trading loss must first be deducted from 2024 total income, and can then be carried back to the total income (2023)

  • Current year relief:
    Property income £25,000
    Less: Current year trading loss (£25,000)

    Total taxable income £Nil - no corporation tax will be paid in the year ending 31/03/2024

  • Carry back relief:
    Total income £200,000
    Less: Trading loss carried back (£75,000)

    Total taxable income £125,000 - corporation tax will be paid on this amount in the tax year ended 31/03/2023.

Remember:

Qualifying charitable donations (QCD) CANNOT be saved, loss must be deducted first and if any income remains - then the QCD can be deducted

Illustration 3

Pulkit Ltd. made the following income for the year ended 31/03/2024:
Trading LOSS (£30,000)
Property income £20,000
Interest income £5,000
Qualifying charitable donations £5,000
Pulkit Ltd. made the following income for the year ended 31/03/2023:
Trading income £20,000
Property income £20,000
Interest income £5,000
Qualifying charitable donations £5,000

How can the trading loss of the year ended 31/03/2024 be relieved?

Solution:

The trading loss of 31/03/2024 can be relieved against:

  1. Current year total income (£20,000 + £5,000)

  2. Carry back 12 months of total income (£20,000 + £20,000 + £5,000)

  3. Total profits of future years (future total profits = unknown)

Here we will illustrate only the current year total income claim and the carry back claim against total income for 12 months.

Trading loss of (£30,000) incurred in the year ended 31/03/2024 will be relieved against the total income generated in 31/03/2024 as shown below.

In the year ended 31/03/2024
Property income £20,000
Interest income £5,000
Total income £25,000
Current year trading loss (£25,000)
Total taxable profit £Nil - no corporation tax will be paid.

The qualifying charitable donations for the year ended 31/03/2024 have been wasted.

In the year ended 31/03/2023: 
The carry back total income claim for 12 months:
Trading income £20,000
Property income £20,000
Interest income £5,000
Total income £45,000
Trading loss relief carry back claim (£5,000)
Qualifying charitable donations (£5,000)
Taxable total profits £35,000

Notice here that the qualifying charitable donation has not been wasted, as there was enough income remaining for it to be deducted.

Loss memo:
Trading loss of 31/03/2024 (£30,000)
Current year claim against total income £25,000
Carry back claim against total income £5,000
Loss to be carried forward Nil 
NotesQuizPaper examCBEMock