There are three ways in which Trading Losses can be set-off:
- Set against total profits in the current accounting period. CTA 2010, s.37(3)(a)
- Carry back and set against total profits in the preceding 12 months. CTA 2010, s.37(3)(b)
- Carry forward and set against next available future trading profits from the same trade. CTA 2010, s.45(4)
Graphical representation
Green arrow shows what can be done.
Red arrow shows what cannot be done.
Example below explains it further:
Say ABC Ltd has been trading for a number of years and below given is the Trading losses and Capital Gains figures for a period of 3 years.
Year 1 Year 2 Year 3
Trading Loss (TL) (30) (20) (100)
Capital Gains (CG) 0 40 80
Computation of Taxable Income
Year 1
Trading Loss £30
Carried forward Loss £30
Year 2
Trading Loss (20)
Capital Gain 40
Net taxable Income 20
Carried Forward Loss 30
CG cannot be set off against carried forward TL so ABC Ltd pays tax on £20 and carries forward £30 of losses.
Year 3
Capital Gain 80
Trading Loss (80) Only (80) utilised out of (100) for Year 3 rest carried back below
Net taxable Income Nil
Carried Forward Loss 30
Carried back loss 20
Carried back loss can enable ABC to claim back tax paid in Year 2.
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