How to Use Losses to Reduce Corporation Tax 2025/26
- JSC Accounting Team
- Oct 7
- 2 min read
Every business has ups and downs. A slow year doesn’t always mean wasted effort. In fact, those losses can become one of your biggest tax-saving tools. The key is knowing how and when to use them.
Understanding trading losses
When your business expenses are higher than your income, the difference is called a trading loss. For limited companies, HMRC allows you to offset those losses against future or past profits, reducing your corporation-tax bill.
The important thing is that losses must come from normal trading activities, day-to-day business operations rather than investments or one-off sales.
Using losses against past profits (Limited Company example)
If your company made profits in the previous year, you can often carry the loss back one year to reclaim some of the corporation tax you already paid. This is called “loss carry-back.”
For example, if you paid £4,000 corporation tax on last year’s profits and then make a £20,000 loss this year, you can offset that loss against last year’s profits and potentially receive a refund.
It’s a simple process handled through your company tax return, but it must be claimed within two years of the end of the loss-making period.
Using losses against future profits
If there are no past profits to offset, you can carry the losses forward indefinitely to reduce your future taxable profits.
When profits return, those carried-forward losses automatically reduce what you owe in corporation tax. It’s a valuable way to smooth cash flow over the long term, particularly helpful for growing businesses that invest heavily upfront.
Group relief (for companies with more than one entity)
If you operate through several companies under common control, it’s possible to transfer losses between them in the same financial year. This is called group relief.
It’s a specialist area, but it means one company’s losses can lower another company’s profits for tax purposes, improving efficiency across the group.
Keep good records
HMRC expects you to keep clear evidence of how losses were calculated and when they were applied. Accurate bookkeeping ensures you don’t lose valuable relief through missed deadlines or incomplete returns.
The simple takeaway
Losses aren’t always bad news. They can be turned into real tax savings if managed properly. Speak to JSC Accounting or your accountant early so you don’t miss the claim window or overlook planning opportunities.
Need help making sense of your taxes? JSC Accounting works with small businesses across the UK to keep things simple and compliant. Get in touch for a friendly chat about how we can help.
