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Corporation Tax

4. Losses

Losses can sometimes be used to reduce the corporation tax bill. However, their use is subject to strict rules, to prevent tax evasion.

4.1 Trading losses can be offset against any other profits (including capital gains) made in the same accounting period.

  • They can also be carried back against profits made in the preceding accounting period.
  • Alternatively, they can be carried forward and set off against future profits.
  • They cannot be carried forward if the company changes hands and there is a major change in the business. So there is no point in buying or selling companies purely for the sake of their tax losses.

4.2 It may be possible for other companies within the same group to make use of a company’s trading losses.

  • To qualify, at least 75% of the shares must be owned by the parent company.
  • There are other restrictions. For example, when a company joins or leaves the group.

4.3 Capital losses can only be offset against capital gains.

They cannot be offset against trading income.

  • However, they can be carried forward indefinitely, so they should always be recorded, even if they cannot be used immediately.
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