No business wants to be loss-making, necessarily, but moving losses between different accounting periods is an effective way of reducing profits and thereby managing your Corporation Tax bill.
Put simply, Corporation Tax losses are defined as an accounting period where expenditure exceeds income.
During the early stages of running a business, it is quite common to experience these periods. Start-ups require significant investment and expenditure to get running, while also seeing smaller revenues.
Over time this balance tends to shift, but these losses can often be carried forward through your accounting into periods of profit.
This acts to reduce the amount of profit your business achieves and thus minimizes your Corporation Tax liabilities.
However, business owners can just go about shifting expenditures around. For a loss to be carried forward within the rules of the Corporation Tax act, it has to be a loss based on trading losses, not just the failure of an investment.
This means that only net losses are counted. This figure is reached after your cash flow has been reviewed and business expenses offset again your business’s income from sales and recurring revenue.
For this income to be counted at all, it must be taxable income from which allowable tax deductions have already been made.
You can also carry back losses, but you won’t be able to carry forward the same loss into a new accounting period if you decide to do this.
When it comes to reporting losses, unlike carrying back profits which requires you to make a separate claim when you complete your CT600 Company Tax return your trading losses will be carried forward to automatically offset profits for the accounting period.
Want to learn more about how carrying forward losses can help you to manage your Corporation Tax liabilities, please contact your Seymour Taylor representative today or email enquiries@stca.co.uk or call 01494 552100.
This blog is for guidance only, professional advice should be obtained before acting on any information contained herein. The information was correct at the time of publishing 16 February 2023