Last updated: 16 October 2026
Why is HMRC writing about company losses?
HMRC sends letters to companies whose tax returns suggest losses may have been used incorrectly. The most common problem is mixing up losses made before 1 April 2017 with losses made after that date. The two types follow different rules, so they must be tracked separately in your records and on the Company Tax Return (CT600).
Pre-2017 and post-2017 losses
| Feature | Losses before 1 April 2017 | Losses from 1 April 2017 |
| Carried-forward trading losses | Only against future profits of the same trade | Against total profits of the company, including other income |
| Group relief for carried-forward losses | Not available | Available |
| Effect of a major change in the business | Can block use after a change of ownership | Similar anti-avoidance rules apply |
How companies can use a trading loss today
- Current year: set against other profits of the same accounting period.
- Carry back: set against total profits of the previous 12 months, after a current-year claim.
- Carry forward: set against future total profits (post-2017 losses) or same-trade profits (pre-2017 losses).
- Group relief: surrender to other group companies.
- Terminal loss relief: on ceasing trade, carry back losses of the final 12 months against profits of the previous three years.
The loss restriction
Each company or group has a deductions allowance of £5 million a year for carried-forward losses. Above that, only 50% of remaining profits can be covered by brought-forward losses. Most small companies never reach this limit, but it must be considered in group situations.
What the HMRC letter asks
The letter usually asks you to check your loss figures, confirm which period each loss arose in and amend the return if needed. You normally have 12 months from the filing deadline to amend a return. If HMRC opens an enquiry, provide a clear loss memorandum showing each loss, when it arose and how it has been used.
Example
A company made a £60,000 trading loss in its year to 31 March 2016 and a £40,000 loss in the year to 31 March 2019. In 2026/27 it has £30,000 of trading profit and £20,000 of rental profit. The 2019 loss can cover both the trading and rental profit (£50,000 in total). The 2016 loss can only be used against trading profit of the same trade. Claiming the 2016 loss against the rental profit would be an error, and this is exactly what HMRC letters target.
Corporation tax rates for 2026/27
Losses save tax at your marginal rate: 19% for profits up to £50,000, 25% above £250,000 and an effective 26.5% in the marginal relief band between the two. That can affect whether you carry back or carry forward.
How to avoid problems
Keep a running loss schedule, update it every year and make sure your software splits losses by date. Before selling the company or changing its trade, check whether losses could be lost under the change-of-ownership rules.
Frequently asked questions
Can a company carry back losses for three years?
Only on ceasing trade. The temporary three-year carry-back for 2020 to 2022 has ended.
Do capital losses follow the same rules?
No. Capital losses can only be set against capital gains.
Is there a time limit to claim carry-back?
Two years from the end of the loss-making period.
Can losses be used against dividends received?
Most dividends a company receives are exempt, so losses are not needed against them.
Related: first-year losses against later profits, trade losses against income and corporation tax rates.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with corporation tax losses and HMRC letters. See our limited company accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 16 October 2026. It is not personal advice, so speak to an accountant about your own situation.
