396 Relief for trading losses other than terminal losses
(1) a company carrying on a trade incurs a loss in the trade, the company may make a claim requiring that the loss be set off for the purposes of corporation tax against any trading income from the trade in succeeding accounting periods, and (so long as the company continues to carry on the trade) its trading income from the trade in any succeeding accounting period shall then be treated as reduced by the amount of the loss, or by so much of that amount as cannot, on that claim or on a claim (if made) under , be relieved against income or profits of an earlier accounting period.
(2) Where in any accounting period a company carrying on a trade incurs a loss in the trade, then, subject to subsection (4), the company may make a claim requiring that the loss be set off for the purposes of corporation tax against profits (of whatever description) of that accounting period and, if the company was then carrying on the trade and the claim so requires, of preceding accounting periods ending within the time specified in subsection (3), and, subject to that subsection and to any relief for an earlier loss, the profits of any of those periods shall then be treated as reduced by the amount of the loss, or by so much of that amount as cannot be relieved under this subsection against profits of a later accounting period.
(3) The time referred to in subsection (2) shall be a time immediately preceding the accounting period first mentioned in subsection (2) equal in length to the accounting period in which the loss is incurred; but the amount of the reduction which may be made under that subsection in the profits of an accounting period falling partly before that time shall not exceed a part of those profits proportionate to the part of the period falling within that time.
(4) Subsection (2) shall not apply to trades within Case III of Schedule D.
(5) (a) Subject to paragraph (b), the amount of a loss incurred in a trade in an accounting period shall be computed for the purposes of this section in the like manner as trading income from the trade in that period would have been computed.
(b) Where expenses of management of an assurance company (within the meaning of section 706) are deductible under section 83 from the profits of the accounting period in which they were incurred, or of any accounting period subsequent to that period, those expenses shall not be taken into account in computing a loss incurred in a trade of the company.
(6) For the purposes of this section, “trading income”, in relation to any trade, means the income which is to be, or would be, included in respect of the trade in the total profits of the company; but where in an accounting period a company incurs a loss in a trade in respect of which it is within the charge to corporation tax under Case I or III of Schedule D, and in any later accounting period to which the loss or any part of the loss is carried forward under subsection (1) relief in respect of the loss or that part of the loss cannot be given, or cannot wholly be given, because the amount of the trading income of the trade is insufficient, any interest or dividends on investments which would be taken into account as trading receipts in computing that trading income but for the fact that they have been subjected to tax under other provisions shall be treated for the purposes of subsection (1) as if they were trading income of the trade.
(7) Where in an accounting period the charges on income paid by a company
(a) exceed the amount of the profits against which they are deductible, and
(b) include payments made wholly and exclusively for the purposes of a trade carried on by the company,
then, up to the amount of that excess or of those payments, whichever is the less, the charges on income so paid shall in computing a loss for the purposes of subsection (1) be deductible as if they were trading expenses of the trade.
(8) In this section, references to a company carrying on a trade are references to the company carrying on the trade so as to be within the charge to corporation tax in respect of the trade.
(9) A claim under subsection (2) shall be made within 2 years from the end of the accounting period in which the loss is incurred.
1 Substituted by NAMAA09 s240 and Sch3 Pt10(6) and coming into operation on such day or days as the Minister may appoint by order or orders either generally or with reference to a particular purpose or provision and different days may be so appointed for different purposes or different provisions - S.I. No. 549 of 2009 appointed 21 December 2009 as the day on which NAMAA09 came into operation
FA02 s54 Amendments
(2) For the purposes of computing the amount of—
(a) charges on income paid for the purposes of the sale of goods (within the meaning of section 454 of the Principal Act),
(b) a loss from the sale of goods (within the meaning of section 455 of the Principal Act),
(c) relevant trading charges on income (within the meaning of section 243A of the Principal Act), and
(d) relevant trading losses (within the meaning of section 396A of the Principal Act),
in respect of which relief may be claimed by virtue of this section, where an accounting period of a company begins before 6 March 2001 and ends on or after that date, it shall be divided into 2 parts, one beginning on the date on which the accounting period begins and ending on 5 March 2001 and the other beginning on 6 March 2001 and ending on the date on which the accounting period ends, and both parts shall be treated as if they were separate accounting periods of the company.
Whether loss relief claim for later year could be included in return for earlier year. Revenue and Customs Commissioners v Cotter  STC 1646
Domestic law allowed a company to take into account losses incurred by its permanent establishment (PE) in another member state. It then provided for reintegration of such losses when the PE made profits. The PE Member state did not allow the carry forward of the losses incurred by permanent establishment belonging to other company. The restriction of the freedom of establishment was allowed – Finanzamt für Körperschaften III in Berlin v Krankenheim Ruhesitz am Wannsee-Seniorenheimstatt GmbH- Case C-157/07 - 2009 STC 138
Domestic legislation not allowing a company to deduct losses incurred by its permanent establishment in another member state was not contrary to EU law where the losses could be carried forward in the latter member state. Lidl Belgium GmbH & Co KG v Finanzamt Heilbronn (case C-414/06) and STC 3229 Charges on income must be utilised before DTR relief is taken. – Commercial Union Assurance Co plc v Shaw (HM Inspector of Taxes).  STC 109
Losses relating to purchase and resale of commercial properties by partnership and whether losses trading losses. Albermarle 4 LLP v Revenue and Customs Commissioners -  SFTD 664
Company becoming UK resident and whether trading losses for previous accounting periods available for offset against trading profits of subsequent accounting periods. Bloomsbury Verlag GmbH v R&CC –  UKFTT 660 (TC)
Taxpayer conducting trade at villa and incurring losses and whether trade carried on on commercial basis and trade carried on with view to profit – Beacon v Revenue and Customs Commissioners  UKFTT 104 (TC)
Appeal Commissioners’ Determination
Whether trade continued to allow losses forward – 24TACD2017
Freedom of establishment
Taxpayer making losses through permanent establishment in UK that if profitable would have been chargeable to corporation tax and whether taxpayer entitled to trade loss relief for corporation tax loss against income tax liability – Revenue and Customs Commissioners v English Holdings (BVI) Ltd  UKUT 842 (TCC)
TB3 July 1991 3.7, TB5 January 1992 3.1
Recording of Losses Forward on Form CT1 - eBrief No. 65/11 - 01 November 2011
Corresponding UK Tax Provision
Formerly Sections 393, 393A, Income and Corporation Taxes Act 1988. Now re-enacted at various places in the Corporation Tax Act 2010. Refer to the Destination Table of that Act for details.
Sections referred to in text
section 83 [Expenses of management of investment companies]
section 243B [Relief for certain charges on income on a value basis]
section 396A [Relief for trading losses]
section 396B [Relief for certain trading losses on a value basis]
section 396C [Relief from Corporation Tax for losses of participating institutions]
section 706 [Interpretation and general (Part 26 – Life Assurance Companies)]
157 Set-off of losses, etc. against franked investment income
158 Set-off of loss brought forward or terminal loss against franked investment income in the case of financial concerns
22A Reduction of corporation tax liability in respect of certain trading income
82 Pre-trading expenditure
247 Relief to companies on loans applied in acquiring interest in other companies
397 Relief for terminal loss in a trade
396A Relief for relevant trading losses
396B Relief for certain trading losses on a value basis
396C Relief from Corporation Tax for losses of participating institutions
398 Computation of losses attributable to exemption of income from certain securities
400 Company reconstructions without change of ownership
401 Change in ownership of company: disallowance of trading losses
402 Foreign currency: tax treatment of capital allowances and trading losses of a company
403 Restriction on use of capital allowances for certain leased assets
404 Restriction on use of capital allowances for certain leased machinery or plant
405 Restriction on use of capital allowances on holiday cottages
407 Restriction on use of losses and capital allowances for qualifying shipping trade
420 Losses, etc. which may be surrendered by means of group relief
420A Group relief: relevant losses and charges
421 Relation of group relief to other relief
425 Leasing contracts: effect on claims for losses of company reconstructions
448 Relief from Corporation Tax
455 Restriction of certain losses
456 Restriction of group relief
485 Relief for gifts to third-level institutions
517 Payments to trustees of approved profit sharing scheme
644C Relief from corporation tax for losses from dealing in residential development land
663 Corporation tax: restriction of relief for losses in farming or market gardening.
666 Deduction for increase in stock values.
679 Exploration expenditure
687 Treatment of losses
690 Interest and charges on income
695 Abandonment expenditure: allowances and loss relief
707 Management expenses
709 Companies carrying on life business
730K Disposal of foreign life policy
747E Disposal of an interest in offshore funds
753 Restriction on relief for losses by repayment of tax in case of dividends paid out of accumulated profits
766 Deduction for certain expenditure on research and development
841 Voluntary Health Insurance Board: restriction of certain losses and deemed disposal of certain assets
847 Tax relief for certain branch profits
Sch 17 Reorganisation into Companies of Trustee Savings Banks