Q: I own a limited company selling winter clothing. Over the last winter, due to the mild conditions, sales of the clothing have much reduced and the company is expecting to make a trading loss in the accounting period to 31 March 2017. Can the company claim relief for the trading loss?

 

A: The following options are available for obtaining relief for trading losses:

– Set off against profits from other sources in the same accounting period
– Carry back against earlier profits from all sources
– Carry forward against future trading profits – note trading profits only

If this company is in a group the trading losses could also be surrendered to another group company under the group relief provisions.

Where a claim is made to set the trading loss against other sources of the same accounting period any balance may then be carried back and set against any profits earned during the twelve months immediately preceding the accounting period in which the loss was incurred. This is extended on cessation to three years.

Any loss not claimed in the current year or carried back can be carried forward and set off against future trading profits.

Claims to set off losses against the current year and previous year profits of any description are only permitted if the company carries on a business on a commercial basis with a view to the realisation of profit. There is no commercial basis restriction for carrying losses forward, since the permitted set off is only against trading profits of that same trade.

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