ACCA ATX ^UK Syllabus A4. Corporation Tax - Carry back relief of trading losses - Notes ^{7 / 14}

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

Illustration 1

In 2025 - a trading loss of (£100,000), it had no other income in that year. 
In 2024 - property income of £75,000 and chargeable gains of £35,000

Calculate Total taxable profits.

Solution:
Property income £75,000
Chargeable gains £35,000
Total income £110,000

Less:

Trading loss carried back (£100,000)

Total Taxable Profit £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 2025 - a trading loss of (£100,000) and property income of £25,000
In 2024 - Total income of £200,000

The trading loss must first be deducted from 2025 total income, and can then be carried back to the total income (2024)

Current year relief:

Property income £25,000

Less
Current year trading loss (£25,000)

Total income £Nil - no corporation tax will be paid in the year ending 31/03/2025

Carry back relief:

Total income £200,000

Less:
Trading loss carried back (£75,000)

Total income £125,000 - corporation tax will be paid on this amount in the tax year ended 31/03/2024

Illustration 3:

Pulkit Ltd. made the following income for the year ended 31/03/2025:

How can the trading loss of the year ended 31/03/2025 be relieved?

Solution:
The trading loss of 31/03/2025 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 31/03/2025 will be relieved against the total income generated in 31/03/2025 as shown below.

The qualifying charitable donations for the year ended 31/03/2025 have been wasted.

In the year ended 31/03/2024: 

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