ACCA TX ^UK Syllabus E. Corporation Tax Liabilities - Terminal loss relief - Notes ^{10 / 14}

Terminal loss relief

If a trading loss occurs in the final 12 months of trading, then this trading loss can be carried back for 36 months against the total income of the company., on a LIFO (last in first out) basis. 

Once again, the loss cannot be restricted to save qualifying charitable donations.

Illustration

Creamy plc. made a trading loss of (£100,000) in its final year of trading. 

It had the following total income:

Year ended 31/03/2025 - £40,000
Year ended 31/03/2024 - £20,000
Year ended 31/03/2023 - £55,000

• The trading loss of (£100,000) will first be relieved against the total income of 31/03/2025:

  Total income £40,000
  Less:
  Terminal loss relief (£40,000)
  Total income £Nil - whatever corporation tax has been paid will be repaid to the company by HMRC

  Then, 

  The trading loss of (£60,000) (£100,000-£40,000)will second be relieved against the total income of 31/03/2024:

  Total income £20,000
  Less:
  Terminal loss relief (£20,000)
  Total income £Nil - whatever corporation tax has been paid will be repaid to the company by HMRC

  Then,

  The trading loss of (£40,000) (£100,000-£40,000-£20,000)will second be relieved against the total income of 31/03/2023:

  Total income £55,000
  Less:
  Terminal loss relief (£40,000)

  Total income £15,000- whatever corporation tax has been paid, part of it will be repaid to the company by HMRC

  Note for the years in which tax has already been paid, this will result in a repayment of tax.