Can Limited Company Losses Be Carried Forward?

Starting and running a limited company comes with its fair share of challenges, including financial ups and downs. One important question for business owners in the UK is: Can limited company losses be carried forward? The good news is that the UK’s tax system allows limited companies to carry forward certain types of losses, which can help reduce tax liabilities in future years.

Here’s everything you need to know.

What Are Limited Company Losses?

Limited company losses occur when the company’s allowable expenses and deductions exceed its income or profits during a given financial year. These losses can arise from various sources, such as trading activities, property income, or capital investments.

Can Losses Be Carried Forward?

Yes, limited company losses can generally be carried forward to offset against future profits. This can reduce the amount of Corporation Tax the company has to pay in future years. The rules for carrying forward losses depend on the type of loss incurred.

Types of Losses and Their Treatment

1. Trading Losses: Trading losses are the most common type of loss for limited companies. If your company incurs a trading loss, you can:

   • Offset the loss against any profits made in the same accounting period.

   • Carry the loss back to offset profits from the previous 12 months, potentially resulting in a tax refund.

   • Carry the loss forward to offset against future trading profits.

2. Capital Losses: If your company incurs a loss from the sale of an asset, this is considered a capital loss. Capital losses can only be used to offset capital gains—they cannot be offset against trading profits. Unused capital losses can be carried forward indefinitely until they are used.

3. Non-Trading Loan Relationship Deficits (NTLRD): Losses from non-trading loan relationships, such as interest payments exceeding interest income, can also be carried forward. These deficits can be offset against non-trading income in future years.

Restrictions on Carrying Forward Losses

While carrying forward losses is a helpful relief, there are some restrictions and conditions to be aware of:

1. Change of Ownership: If there is a significant change in company ownership and the company’s activities substantially change, the ability to carry forward losses may be restricted.

2. Group Relief Rules: Losses can sometimes be shared within a group of companies, but specific rules apply to how and when this can be done.

3. Annual Deduction Cap: For losses carried forward from 1 April 2017 onwards, there is a cap on how much loss can be offset against profits. Generally, the cap is 50% of profits above £5 million.

How to Claim Carried Forward Losses

To claim carried forward losses, your company must:

• Include the losses in its Corporation Tax Return (CT600).

• Clearly indicate how the losses are being used, whether carried forward or offset against profits.

• Ensure accurate records of the losses and supporting documentation are maintained.

Benefits of Carrying Forward Losses

Carrying forward losses offers several advantages, including:

• Reducing future tax liabilities.

• Improving cash flow by lowering future tax payments.

• Providing flexibility to manage profits and losses strategically.

Final Thoughts

Yes, limited company losses can be carried forward, offering a valuable way to reduce tax liabilities in future years. However, understanding the rules and restrictions is key to making the most of this relief. If you need help managing your company’s finances and tax obligations, seek professional advice. 

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