Don’t miss out on a valuable tax relief
A sometimes overlooked loss relief is available to companies where they cease trading and have made losses in the last 12 months.
The normal rules
Without ceasing to trade, if your company makes a loss from trading, the sale or disposal of a capital asset or on property income, then you may be able to claim relief from corporation tax.
You get tax relief by offsetting the loss against your other gains or profits of your business in the same accounting period. You can also choose to carry the loss back, or it will be carried forward to another accounting period.
Terminal loss (TL) rules
The TL rules go much further than the normal rules above. Where a company has stopped trading and it has made a loss in its final 12 months of its trade the relief is extended as the company can carry back any trading losses that occur in the final 12 months of a trade and set them off against profits made in any or all of the three years up to the period when you made the loss.
The small print:
A detailed example of how the carry back works can be found in HMRC's company taxation manual.
In addition to the above, the TL rules are also extended specifically for losses made since 1 April 2017. In this case the company may be able to claim Terminal Loss Relief for carried forward losses of that trade.
This is designed to give additional relief to companies and organisations that have been prevented from fully relieving profits of the final three years of a trade, due to restrictions on relief for carried forward losses.
The small print:
Note that you can only use this relief to reduce profits of the three years ending with the end of the period in which trading stopped. This is not the same as the three year period that applies for losses that occur in the final 12 months of the trade.
If the final accounting period and final 12 months of trade begin on 1 January 2025 and end on 31 December 2025, the three year period for terminal relief for:
In both cases, if one of the earlier accounting periods falls partly within and partly outside the three year period, then you’ll have to apportion the profit of that accounting period.
You cannot use terminal relief for carried forward losses of a trade to offset profits apportioned outside its particular three year period.
Any loss must first be offset against the profits of most recent years before being carried back to earlier years.
You can only claim this relief to reduce profits of periods from 1 April 2017.
You can only claim relief against profits for periods later than one when the loss you’re using was originally sustained, even if there are earlier periods within that three year period.
This applies to each amount of loss that’s been carried forward to the final period.
You cannot claim this relief to reduce profits for either:
HMRC's company taxation manual gives full guidance on terminal losses.
HMRC offers full guidance on claiming terminal loss relief and obtaining a refund.