What changes to loss relief rules affect UK Corporation Tax filings in 2024/25?

Introduction: why loss relief is a live issue for 2024/25 filings

Loss relief sits right at the centre of practical UK Corporation Tax compliance. For many companies it is the difference between paying tax this year versus carrying tax capacity forward to a later year; for groups it can affect whether cash tax is paid in one entity while another entity has unused losses; and for businesses with volatile profits it determines how quickly they can recover from a downturn. When people ask what has “changed” for 2024/25 Corporation Tax filings, the honest answer is that the headline architecture of loss relief has already been transformed by reforms that took effect from 1 April 2017, and by the more recent shift to a higher main Corporation Tax rate alongside the reintroduction of reliefs for smaller profits. But 2024/25 is still a year in which the rules can bite differently in practice: the mix of tax rates, the mechanics of restrictions, and the interaction with quarterly instalment payments, group structures, and accounting periods that straddle tax years all make the loss position more sensitive than it used to be.

This article focuses on the loss relief rules that companies are most likely to encounter when preparing UK Corporation Tax computations for periods ending in 2024/25. It explains the restrictions that can limit how much profit losses can shelter, where the “50% rule” becomes relevant, how the group rules affect planning and compliance, and what practical steps to take to avoid common errors. It also highlights the changes that, while not always labelled as “loss relief changes”, can have the same real-world effect on how much tax is payable and when.

Quick recap: the main categories of corporate losses

Before getting into what changes matter for 2024/25, it helps to anchor the key types of loss relief that appear in UK Corporation Tax computations. The label “losses” covers several distinct regimes, each with its own conditions and claim processes:

Trading losses: losses from a trade computed for tax. These can often be carried forward against future profits, carried back (typically to the previous 12 months), or surrendered as group relief (subject to conditions).

Non-trading deficits on loan relationships: losses arising from financing and loan relationship items outside the trading profit stream. These have their own carry-forward and group relief rules.

Property business losses: losses from UK property business activities, generally carried forward against future profits of the same UK property business (with more limited flexibility than trading losses).

Capital losses: losses on chargeable gains, generally carried forward and set against future chargeable gains (not against trading income).

Management expenses (for investment companies): broadly, overhead-type deductions for investment companies, which can be treated as losses and carried forward against total profits, again subject to conditions.

In the background, a modern Corporation Tax computation often needs to track several “buckets” of losses, each with its own available amount, restrictions, and ordering rules. The changes that matter most in 2024/25 tend to involve how these buckets can be used, especially carry-forward losses, and how the group-wide restriction and allowance work.

The biggest practical shift that still affects 2024/25: “same company” carry-forward is no longer the whole story

Historically, companies tended to think of losses as something used by the same company that generated them. That remains true in many cases, but reforms introduced more flexibility for certain carry-forward losses to be used against a wider range of profits, and to be surrendered within a group via a specific mechanism. In practice, that means that many 2024/25 computations must consider:

Whether losses carried forward are “pre-reform” or “post-reform” (as the usage rules differ).

Whether the group wants to allocate a group-wide allowance (the “deductions allowance”) to manage the restriction on using carried-forward losses.

Whether the group intends to surrender eligible carried-forward losses through a group relief mechanism (rather than only surrendering current year losses).

Even if your business hasn’t changed its loss profile, it’s common to see the compliance burden appear in 2024/25 because a company that once had small profits is now generating larger profits (or vice versa), and the restriction and allocation rules suddenly come into play. The rules may have been “in the background” for years, but 2024/25 can be the year they start to matter financially.

The 50% restriction on carried-forward losses: when it matters and why 2024/25 can trigger it

One of the most significant limitations on loss relief in the modern regime is the restriction that can prevent carried-forward losses from sheltering more than a certain portion of profits. The rule is often summarised as: carried-forward losses can generally relieve only up to 50% of profits above a fixed annual allowance. This is an oversimplification, but it captures the core concept that, once profits exceed a threshold, there will typically be a minimum taxable amount even if the company or group has substantial brought-forward losses.

The way this works in practice is that there is a group-wide (or company-wide, if not in a group) “deductions allowance”. Profits up to that allowance can generally be fully sheltered by carried-forward losses (assuming you have the right type of losses and meet the conditions). Above the allowance, the amount of profit that can be relieved by carried-forward losses is restricted, typically to 50% of the remaining profit.

So why can 2024/25 be a year when more companies notice this? Two main reasons:

Higher effective tax sensitivity: where the main Corporation Tax rate is higher, the cash impact of a restriction is larger. If a group is forced to pay tax on a slice of profit that it expected to shelter, the incremental cost is bigger at higher rates.

Profit volatility and “bounce back” years: many businesses experienced atypical performance in earlier years and then recovered. A company might have accumulated losses during a downturn and then returned to strong profitability. The restriction is designed to ensure that, for very profitable businesses, losses do not eliminate the tax base completely.

For compliance, the key point is that you must model the restriction at the right level (company or group) and allocate the deductions allowance properly. It is not enough to apply a simple “we have losses, therefore we pay no tax” approach if profits exceed the relevant threshold.

Deductions allowance allocation: a filing issue, not just a planning issue

The deductions allowance is easy to misunderstand because it sounds like a planning concept, but it is also a compliance and filing concept. For 2024/25 returns, groups that have profits and carried-forward losses may need to decide how to allocate the allowance between companies. That allocation affects the extent to which carried-forward losses can be used in each company.

Even when a group’s overall position is straightforward (for example, one company has profits and another has losses), the allocation can still matter because:

The restriction is applied by reference to each company’s taxable profits once the group-level allowance has been allocated.

Different companies may have different types of losses, and some losses may be eligible to relieve a broader range of profits than others.

Timing can differ if companies have different accounting period end dates, particularly where accounting periods straddle tax years or where group members joined or left during the year.

In 2024/25 filings, this can show up as an additional layer of computation and narrative: explaining how the allowance was allocated, ensuring that allocations are consistent across group companies, and documenting the basis in case of later review. It also matters that the allowance is not automatically “optimised” by the system; the group’s decision can influence cash tax outcomes, and errors can lead to underpayments or lost relief.

Carrying losses back: what still works, what doesn’t, and what to watch in 2024/25

Loss carry-back is often the first relief businesses consider because it can create a repayment of Corporation Tax already paid. In general, the standard carry-back for trading losses is limited to the previous 12 months (subject to claim timing and other conditions). Some businesses assume that carry-back is always available or always beneficial, but in 2024/25 it is especially important to check the interaction with:

Changing tax rates: if the tax rate in the prior period differs from the rate in the loss period, the value of carry-back might be lower or higher than expected. A pound of loss used against profits taxed at a higher rate is worth more in cash terms than a pound used at a lower rate.

Marginal relief and associated company rules: for companies around the thresholds for small profits relief and marginal relief, the effective rate can vary. Carrying a loss back into a period that changes where you sit on those thresholds can have second-order effects.

Quarterly instalment payments (QIPs): larger companies paying Corporation Tax by instalments can see cash flow impacts from loss claims. The timing of claims and amendments can matter, and you may need to align claims with instalment positions to avoid interest charges.

From a filing perspective, ensure that a carry-back claim is made in the correct form and within the relevant deadlines. Also ensure that you are not double-counting: a loss carried back cannot also be treated as available for carry-forward or group relief to the extent already utilised.

Carry-forward flexibility: broader use comes with more complexity

For many companies, the most important “change” in the loss relief landscape is the modern flexibility for certain losses carried forward. Under the post-reform regime, trading losses and certain other losses carried forward can, in many cases, be used against total profits (not just profits of the same trade), subject to the restriction rules. This can accelerate loss utilisation, especially where a company has multiple profit streams or where a trade has ceased but the company continues with other activities.

However, that flexibility comes with compliance complexity. For 2024/25 filings, typical issues include:

Identifying which losses are eligible for flexible carry-forward: not all losses have the same scope. Capital losses remain restricted to gains; property losses remain generally ring-fenced; and some pre-reform losses retain narrower usage rules.

Ordering rules: the tax computation must apply losses in the correct order, including current year reliefs and brought-forward amounts, and in a manner consistent with claims made. Misordering can unintentionally waste relief (for example, using a more flexible loss where a ring-fenced loss would have been forced to be used, or vice versa).

Interaction with group relief: if you surrender losses as group relief or as group relief for carried-forward losses, that can affect what is left to use in the company itself.

In a 2024/25 context, the interaction with tax rates is often the practical driver: businesses want to deploy losses where they shelter profits taxed at higher effective rates, but the restrictions may limit how far that can go.

Group relief for carried-forward losses: a compliance touchpoint that can surprise groups

Group relief has long allowed the surrender of certain current-year losses between group companies. The modern regime extends this, in a defined way, to allow certain carried-forward losses to be surrendered. This can make a difference for groups where the loss-making company is not expected to return to profit soon, or where profits arise in a different group company. For 2024/25 filings, the key points to watch include:

Eligibility and elections/claims: surrendering carried-forward losses is not identical to surrendering current-year losses. Groups must ensure that the relevant conditions are met and that the claims are made correctly.

Interaction with the 50% restriction and the deductions allowance: even if losses can be surrendered, their use may be restricted in the recipient company if profits are high. The allocation of the deductions allowance can therefore influence whether a surrender is valuable in cash terms.

Documentation and consistency: group relief claims must match between surrendering and claimant companies. When carried-forward losses are involved, the tracking of amounts becomes more complicated, and inconsistencies can create enquiry risk.

In practice, many groups use software or spreadsheets to track loss pools. For 2024/25, the risk is that a group that “used to be simple” now has to track post-reform losses separately and ensure that surrendered amounts are carved out correctly.

Change in profit profile: why the same rules can yield a different answer in 2024/25

A theme running through 2024/25 filings is that the rules can appear to have changed because the business context changed. Consider a company that carried forward trading losses of £3 million from prior years. In a modest profit year with taxable profits of £200,000, the company might shelter the entire profit with losses and pay no Corporation Tax. In a strong profit year with taxable profits of £5 million, the company might still have plenty of losses, but the 50% restriction could mean it cannot shelter all profits, leading to a tax payment even though losses remain available. The company might perceive this as a “change” even though the rule has been there for several years.

This matters in 2024/25 because many businesses have moved into higher profitability bands, and because the cash value of any restricted profit is more significant when rates are higher. For groups, a small change in allocation of the deductions allowance can shift taxable profits between companies and change total tax payable (and the distribution of tax payments) for the period.

Associated companies: thresholds, reliefs, and why they affect loss planning

When considering loss relief in any period, it’s important to consider how “associated companies” affect various thresholds in the Corporation Tax system. Although this topic is often discussed in the context of small profits relief and marginal relief, it can indirectly affect loss decisions because the effective tax rate on profits can change with the number of associated companies. That, in turn, affects where losses are most valuable.

For 2024/25 filings, businesses should be careful to correctly identify associated companies across the accounting period. A change in ownership, a new subsidiary, or a company joining or leaving the group can alter the threshold allocations. That can create outcomes such as:

Different effective rates across periods that complicate carry-back decisions.

Different cash tax value of losses depending on where profits fall relative to thresholds.

More complex computation narratives where the accounting period straddles changes in association status.

Even though the associated company rules are not “loss rules” per se, they influence the context in which loss relief is claimed, particularly where you have discretion about timing or allocation of relief.

Accounting periods that straddle dates: the most common 2024/25 trap

Many companies do not have accounting periods that align neatly with the tax year, and UK Corporation Tax uses accounting periods rather than tax years. For 2024/25 filings, this can create traps in the way loss relief is applied, especially where a company’s period straddles:

Changes in Corporation Tax rates that require apportionment.

Changes in group structure (companies joining or leaving, or changes in ownership).

Changes in profit mix that affect how losses are best deployed.

The key practical point is that loss relief claims are made by accounting period, and tax rates may need to be blended. If you carry a loss back to a prior period that had a different blended rate, the cash effect differs. Similarly, where group membership changes mid-period, you may need to consider how group relief and the deductions allowance apply.

For compliance, ensure that your loss utilisation schedule is aligned to accounting periods, not just fiscal years, and that you have evidence supporting any apportionments used.

Loss streaming and ring-fencing: what hasn’t changed, but still shapes the answer

It is tempting to focus only on the flexible carry-forward and group restriction rules, but ring-fencing remains a core feature of UK tax. Certain losses simply cannot be moved around freely. For 2024/25, common examples include:

Capital losses being usable only against chargeable gains.

UK property business losses generally being usable only against future UK property business profits.

Some pre-reform trading losses retaining narrower usage rules (often tied to the same trade).

These constraints often drive the practical “change” that a filer experiences: you may have plenty of overall losses but still pay tax because the profit you have is in a category that the losses cannot offset. In 2024/25, with higher rates and tighter cash management, these ring-fences can feel more painful, and they can prompt businesses to revisit their internal reporting of loss pools so that tax is not unexpectedly payable at year-end.

Change of ownership and loss relief: the compliance checks you should not skip

Loss relief is one of the most sensitive areas when there has been a change in ownership. The UK rules contain anti-avoidance and restriction provisions that can limit the ability to use losses following certain ownership changes, especially where there is a major change in the nature or conduct of a trade, or where arrangements have been made with a tax advantage motive. For 2024/25 filings, this becomes relevant if your business has:

Undergone an acquisition or disposal in the recent past and is now looking to use historic losses.

Changed its activities significantly after a change in ownership, for commercial reasons or otherwise.

Reorganised intragroup trades or assets in a way that might be viewed as creating or accelerating the use of losses.

Even where the commercial story is straightforward, the compliance task is to evidence that loss utilisation is within the rules. This might include maintaining board minutes, acquisition documents, and clear narratives in working papers that explain why the business changed and how that relates (or does not relate) to the loss position.

Business continuity and cessation: using losses when a trade ends

Companies sometimes assume that if a trade ceases, trading losses are “stuck” and become unusable. The reality depends on the nature of the losses, when they arose, and what other profits exist in the company. Under the modern regime, certain carried-forward trading losses can in many cases be set against total profits, which can make them usable even after a trade cessation, subject to conditions and restrictions. However, the compliance risk is that you may:

Apply the wrong rule to the wrong loss pool (for example, treating an older loss as if it were a post-reform loss with flexible use).

Fail to consider cessation-specific reliefs (such as terminal loss relief, where applicable) that might provide better outcomes.

Lose track of trade identity where activities morph rather than cleanly cease.

In 2024/25, this often comes up for businesses that restructured during earlier years and are now in a more stable operating model. Losses remain on the balance sheet and in tax trackers, and the question becomes how to use them efficiently and compliantly.

Instalment payments and interest: why loss relief can change cash flow even if total tax is unchanged

For larger companies and many groups, Corporation Tax is paid through quarterly instalment payments. Loss relief can change the pattern of those payments. A business may have paid instalments during the year based on forecast profits, then later realise that losses are available to shelter profits, leading to overpayment and repayments (or, conversely, underpayment and interest).

In 2024/25 filings, this can become more pronounced because:

Profit forecasts can be harder in volatile markets, leading to instalment positions that are later corrected by loss claims.

The restriction rules can cause “unexpected taxable profits” even when there are large losses, resulting in an underpayment if the business assumed profits would be fully sheltered.

Group relief positions can shift late if the group finalises accounts on different timetables across subsidiaries.

To manage this, companies should align tax provisioning with an up-to-date loss utilisation model throughout the year, not just at year-end. From a filing standpoint, ensure that the final return reconciles clearly to instalment payments and that any repayment claims are supported.

Practical filing checklist: what to update in your 2024/25 Corporation Tax working papers

Even if you believe the rules haven’t changed for your business, your working papers for 2024/25 should reflect the current regime and guard against common errors. A practical checklist includes:

Loss pool reconciliation: reconcile each category of losses (trading, non-trading loan relationship deficits, property, capital, management expenses) from opening to closing, showing additions, utilisation, surrender, and expiries (if any apply under specific rules).

Pre- and post-reform separation: where relevant, track losses generated before and after the reform start date separately, because the usage rules can differ.

Restriction computation: if carried-forward losses are used, compute whether the restriction applies and document the calculation clearly.

Deductions allowance allocation: where in a group, document the allocation of the allowance and ensure consistency with other group companies’ computations.

Group relief matching: ensure surrender and claim amounts match across entities and that surrender types (current year versus carried-forward mechanism) are correctly identified.

Ownership and activity changes: document any ownership change, major activity change, or reorganisation that could affect loss use, including a narrative and supporting evidence.

Rate and period apportionment: where accounting periods straddle dates with different rates or structural changes, document apportionments and ensure losses are applied on the correct basis.

Instalment payment reconciliation: reconcile the tax charge to payments on account and interest, so the cash position is clear.

This is the kind of work that reduces the risk of enquiries, reduces the risk of paying tax unnecessarily due to conservative assumptions, and improves the speed of close.

Common misconceptions that can lead to incorrect 2024/25 filings

Several recurring misconceptions cause errors in Corporation Tax returns involving losses:

“We have losses, so we won’t pay tax.” Not necessarily. The restriction on carried-forward losses can force a minimum taxable profit once profits exceed the allowance threshold. Also, losses may be ring-fenced and not available against the profit you have.

“All losses carried forward work the same way.” They don’t. The category of loss matters, the period it arose can matter, and eligibility for flexible use and surrender can differ.

“Group relief is automatic.” It is claim-based and must match across entities. For carried-forward losses, the mechanics are more complex, and errors can occur if the group doesn’t coordinate.

“We can decide later where to use losses.” Some claims are time-limited, and the choices you make can affect future flexibility. Also, instalment payment positions and interest can be affected by late changes.

“A reorganisation doesn’t affect losses if it’s within the group.” Intragroup reorganisations can still affect which company holds profits and which holds losses, and can trigger additional analysis under anti-avoidance and ownership/change rules in certain contexts.

What counts as a “change” for 2024/25: a practical summary

If you are trying to interpret the question “what changes to loss relief rules affect UK Corporation Tax filings in 2024/25?”, it helps to separate “new law” from “new impact”. The core loss relief framework is not reinvented each year, but the impact can shift year by year because of rates, thresholds, and the business’s profit position. In practical terms, 2024/25 filings are most affected by:

The continued operation of the carried-forward loss restriction for profits above the allowance threshold, often felt more keenly in higher profit years.

The need to allocate the deductions allowance within groups, turning what might have been a tax planning discussion into a compliance requirement.

The interplay between flexible carry-forward use and ring-fenced loss categories, requiring careful tracking and correct ordering in computations.