If your new limited company makes a loss in its first year, you still need to file a corporation tax return (the CT600 form). You pay zero corporation tax because there is no profit to tax. But the loss itself is not wasted. It becomes a valuable asset you can use to reduce tax on future profits or, in limited circumstances, to reclaim tax paid in an earlier period.
Most business owners assume a loss means they simply file nothing and move on. That is wrong. HMRC still expects a CT600 return, and the way you report the loss determines how you can use it later. Get the filing wrong and you could lose the relief entirely.
This article covers how corporation tax works for a loss-making company, the specific loss relief options available, and the practical steps you need to take in year one.
You Still File a Corporation Tax Return
Even if your company made no profit at all, you must file a full CT600 return with HMRC. The deadline is 12 months after the end of your accounting period. For a company that started trading on 1 January 2025 and had a 12-month period ending 31 December 2025, the return is due by 31 December 2026.
Your return will show the loss on the trading page (page CT600A for most small companies). You enter your turnover, cost of sales, and overheads exactly as you would for a profitable company. The difference is that the "profit" line shows a negative figure.
You also need to submit your statutory accounts with the return. Those accounts will show the loss in the profit and loss account. There is no separate filing for a loss-making company. It is the same process as a profitable company, just with different numbers.
How Corporation Tax Works on a Loss: The Basic Principle
Corporation tax is charged on your company's taxable profits. Those profits are calculated by taking your accounting profit (or loss) and making adjustments for items that HMRC treats differently. For example, entertaining clients is not deductible for tax purposes, so you add it back. Capital allowances replace depreciation. If your adjusted result is still a loss, you pay zero corporation tax.
But the loss does not disappear. It sits in your company's tax history and can be used in one of several ways:
- Carry forward against future profits from the same trade.
- Carry back against profits from an earlier period (limited to 12 months for most companies, extended to 3 years for terminal losses).
- Group relief if your company is part of a group and another group company has profits to shelter.
- Surrender for R&D tax credits if the loss is caused by qualifying R&D expenditure.
The most common option for a new company is to carry the loss forward. You do nothing at the time of filing. You simply note the loss on the return and use it against the first future profits your company generates.
Carry-Forward Loss Relief: The Default Option
Under current rules (post-1 April 2017), trading losses carried forward can be used against profits of the same trade in later periods. There is no time limit. The loss can sit unused for 10 years or more, as long as the company continues the same trade.
There is a restriction, though. From 1 April 2017, carried-forward losses can only be used against 50% of your profits in any single year, subject to a £5 million deduction allowance per group. For most small companies, the £5 million allowance means the 50% cap does not bite. But if your company is part of a larger group, or if you have very large losses relative to your profits, you need to check the restriction.
For a typical new company carrying forward a loss of, say, £14,720, you simply deduct that loss from the first year's profits when they arise. If year two produces profits of £28,400, you deduct the £14,720 loss, leaving £13,680 taxable. At 19% corporation tax, you pay £2,599.20 instead of £5,396. That is a real saving.
Carry-Back Loss Relief: When It Applies
If your company made a profit in a previous period (unlikely in year one unless you started trading part-way through a previous year), you can carry the loss back against those profits. The carry-back period is 12 months. You claim by amending the earlier return or by writing to HMRC.
For a genuine start-up with no prior profits, carry-back relief is irrelevant. But if you incorporated part-way through a year and had a short profitable period followed by a loss in the next full year, carry-back could apply. It is worth knowing the option exists.
Terminal Loss Relief: For Companies That Stop Trading
If your company stops trading and makes a loss in its final 12 months, you can carry that loss back against profits from the preceding 36 months. This is called terminal loss relief. It is not relevant for most new companies, but if your start-up fails within the first few years, terminal loss relief could generate a corporation tax repayment from earlier profitable periods.
R&D Tax Credits and Losses
If your loss is caused by qualifying research and development expenditure, the rules are different. You may be able to surrender the loss to HMRC in exchange for a cash payment. This is the R&D tax credit scheme.
For accounting periods starting on or after 1 April 2024, the merged R&D scheme applies. Loss-making companies that spend 30% or more of their total costs on R&D can use the enhanced R&D intensive scheme (ERIS). This allows you to surrender the loss for a payable credit worth 14.5% of the surrendered amount.
For a new tech or engineering company with heavy R&D spend and no revenue yet, this can be a significant cash injection. You file your CT600 return, claim the R&D relief, and HMRC pays you cash. You do not need to wait for future profits to use the loss.
If you think R&D relief might apply, speak to our R&D tax credits team before filing. The claim requires detailed technical and financial reporting, and getting it wrong can trigger an HMRC enquiry.
Group Relief: If You Are Part of a Group
If your company is part of a group (typically 75% or more ownership by a parent company), you can surrender the loss to another group company that has profits. That company then uses the loss against its own profits, reducing its corporation tax bill. The loss-making company receives a payment from the profitable company for the value of the loss.
This is common in group structures where a new subsidiary makes losses while the parent or another subsidiary is profitable. The group effectively shifts the tax benefit to where it is most useful.
What Happens to the Loss If You Change Trade
If your company changes its trade significantly, you can lose the right to use carried-forward losses. HMRC looks at whether the trade is fundamentally the same. A software company that pivots from app development to IT consultancy might keep its losses. A construction company that switches to retail almost certainly loses them.
If you are considering a major change of direction, talk to your accountant before filing the return. The way you describe the trade on the CT600 can affect whether the losses survive a later change.
Directors' Loan Accounts and Losses
One trap for new companies is the interaction between losses and directors' loan accounts. If you put money into the company as a director's loan (not share capital), and the company makes a loss, the loan account sits as a credit balance. That is fine. But if you take money out of the company while it is loss-making, and the company cannot repay you because it has no profits, you may trigger a benefit in kind charge or, worse, a loan to participator charge under Section 455.
The S455 charge is 33.75% of the loan amount, payable by the company. It is refundable when the loan is repaid, but the cash flow impact can be severe. If your company is loss-making, think carefully before taking any money out beyond your salary.
For more on this, see our guide to director pay and dividends.
Filing the CT600 for a Loss-Making Company
Here is the practical process for filing a corporation tax return when your company makes a loss in year one:
- Prepare your statutory accounts showing the loss.
- Complete the CT600 return, entering the loss on the trading page.
- Submit the return to HMRC through your accounting software or commercial filing software.
- Include the CT600 computations showing how you arrived at the loss.
- If you want to carry the loss forward, do nothing else. HMRC records the loss automatically.
- If you want to claim R&D relief or group relief, include the relevant supplementary pages.
Most accounting software packages like Xero, FreeAgent, and QuickBooks can generate the CT600 directly. If you use an accountant, they will handle the filing. As ICAEW qualified accountants, we file CT600 returns for loss-making companies every week. The process is the same as for profitable companies. The only difference is the result.
Common Mistakes with Loss-Making Companies
Here are the mistakes we see most often:
- Not filing at all. Some directors assume no profit means no return. That is wrong. HMRC charges penalties for late filing even if no tax is due.
- Missing the deadline. The 12-month filing deadline still applies. Late filing penalties start at £150 for a private company and escalate.
- Not recording the loss on the return. If you file a nil return without showing the loss, HMRC has no record of it. You cannot use the loss later because HMRC does not know it exists.
- Taking dividends from a loss-making company. Dividends can only be paid from distributable profits. If your company has accumulated losses, there are no distributable profits. Paying dividends from a loss-making company is illegal under the Companies Act 2006.
- Ignoring the associated company rules. If your company has associated companies, the corporation tax thresholds are divided. A loss-making company still counts as an associated company for threshold purposes.
Planning Ahead: Using the Loss Strategically
If your company makes a loss in year one, you have options. The most common is to carry the loss forward and use it against the first profits. But if you expect to remain loss-making for several years, or if you have R&D spend, the R&D credit route may be better. If you are part of a group, group relief may be optimal.
The key is to file the return correctly and on time. That preserves your options. Once the loss is recorded, you can decide later how to use it.
If you are not sure which option suits your company, speak to your accountant before the filing deadline. Changing the treatment after the return is filed is possible but requires an amendment and, in some cases, HMRC agreement.
For a full explanation of how corporation tax works for a profitable company, see our corporation tax guide. For the basics on starting a limited company, visit our incorporation page.