Are there restrictions on types of expenses that result in a company loss for corporation tax refund? The scenario is a company with a single employee. For 2023/24: £120,000 income - £20,000 expenses including £12,000 salary - £100,000 profit - £19,000 corporation tax. For 2024/25:£8,000 income - £14,000 expenses including £12,000 salary - £6,000 loss. Am I able to claim a £1,140 corporation tax refund from the previous year, or are there restrictions that limit salary to a maximum of income? My accountant is saying I cannot reclaim corporation tax on salary in excess of current year income but I cannot find any reference to this rule. 

Arthur replies: 

You can usually carry back a trading loss and get a corporation tax repayment from the previous 12 months. There is no HMRC rule that blocks loss relief just because a director’s salary exceeds that year’s income. The key tests are that the expense is an allowable trading expense and (for salary or bonuses) that it was actually paid within nine months of the period end. A trading loss for an accounting period can be set against total profits of that same period, and any unused balance can be carried back against total profits of the previous 12 months (by accounting periods), if the same trade was carried on then. The claim is under CTA 2010, s 37. Salary is deductible if it’s wholly and exclusively for the trade (normal for a working director) and run through PAYE. HMRC accepts in its Business Income Manual that for a controlling director who generates the company’s income, the remuneration level is a commercial decision; disallowance only arises where there’s a non-trade purpose or an ‘excess’ (NB. your figure of £19,000 corporation tax for the £100,000 profits for 2023/24 ignores the marginal rate of 26.5% corporationtax for profits over £50,000.)