Trading losses: carrying them back and forward

You still have to file, even with no tax to pay

It feels odd to file a tax return when there's no tax to pay. But a loss-making year is still a year, and if your company was active (trading, earning, or spending to earn) HMRC still expects the same two things from you as a profitable year.

Those two things are your Company Tax Return (the form HMRC calls a CT600) and your statutory accounts. The return sets out what your company earned and spent, shows that the figure at the bottom is a loss, and confirms there's no Corporation Tax to pay this year. Skipping it because "there's nothing to pay" is one of the most common, and most costly, mistakes a small company makes.

Two reasons it still matters. First, a missed return brings an automatic penalty even when the tax owed is nil, so doing nothing can turn a no-tax year into a year you owe a fine. Second, and this is the big one, filing the loss is how you put it on record so it can save you money later. More on that below.

What a trading loss actually is

A trading loss is simple: over the year, the costs of running your business came to more than the money it brought in. You spent more than you earned, so instead of a profit at the bottom, there's a loss.

It's normal, and it's not a sign you did anything wrong. Lots of healthy companies make a loss, especially in their first year or two, when you're buying equipment, paying for a website, building up stock or taking on staff before the income has caught up.

How the loss is worked out

It's the same sum as a profit, it just lands on the other side of zero. You take everything your company earned from its trade, then take off the genuine costs of running that trade. If the costs are bigger, the result is a loss.

• Money in: your sales, your fees, the income from the work you do.
• Money out: the real costs of running the business, like stock, wages, rent, insurance, software and work travel.
• If money out is bigger than money in, the difference is your trading loss for the year.

The main thing you can do with a loss: carry it forward

Here's why a loss is worth recording carefully, rather than just shrugging at. A trading loss isn't wasted. The most common thing a small company does with it is carry it forward: you hold the loss over and set it against a future year when the business does make a profit. That future profit gets reduced, so your Corporation Tax bill that year is smaller.

Think of it as the tax system recognising that a business has good years and bad years. A loss you made building the business can soften the tax on the profit you make once it's working. You set the loss against future profits of the same trade, and you only pay Corporation Tax on what's left after the loss has been used up.

There are other things some companies can do with a loss too, such as setting it against the previous year. But for most small companies, carrying it forward to a future profit is the simple, useful route, and it's the one we handle for you.

A worked example over two years

This is easiest to see across two years, a loss-making year followed by a profitable one.

Year 1: the loss

Your company has a tough first year and ends up with a £8,000 trading loss. You file your return and accounts as normal. There's no Corporation Tax to pay, because there's no profit. The important bit: your return records that £8,000 loss, so it's there to use later.

Year 2: the profit

The next year goes well and the company makes a £20,000 profit. Normally you'd pay Corporation Tax on the whole £20,000. But you've got that £8,000 loss carried forward from Year 1. You set it against this year's profit, so only £12,000 is actually taxed.

Why filing the loss is the whole point

Now the warning that ties it all together. The benefit in that example only exists because the loss was put on a filed return in Year 1. If you don't file, you don't establish the loss, and HMRC has no record that it ever happened.

An unrecorded loss is one you can't set against a future profit. So the year you finally make money, you'd pay Corporation Tax on the full amount, with nothing to take off, even though the earlier loss was real. The work was done, the money was genuinely lost, but the tax saving slips away simply because it was never written down where it counts.

• File the loss, and it's on record, ready to reduce a future Corporation Tax bill.
• Don't file it, and there's nothing to carry forward, so a future profit gets taxed in full.
• Either way you were meant to file, so not filing costs you the saving and risks a penalty on top.

That's the real reason a loss-making year is worth taking seriously. A year with no tax to pay can quietly become one of the most valuable returns you ever file, because of the bill it saves you down the line.

How SimpleReturns handles a loss-making year

You don't need to understand any of the above to get it right. Upload your bank statement, and we read your year's money in and out, add up your allowable costs, and work out where you landed. If that's a loss, we show you the figure and explain it in plain English.

We then record the loss correctly on this year's Company Tax Return and accounts, and file the full return to HMRC, so the loss is properly on record and ready to be set against a future profit. There's no separate "loss form" to chase and no box for you to find.

One honest note on next year. When your profitable year comes around, the loss is carried in through that year's return rather than appearing on its own. So keep your filed loss-making return safe, it's the proof of the loss you'll be setting against your profit, and the figure you'll enter on next year's return when the time comes.