In summary, for continuing trades, current year trading losses may be relieved against the following:

1. •

   total income of the year of loss or the preceding year

2. •

   current year or preceding year capital gains, to the extent that losses cannot be relieved against current or prior year total income, or

3. •

   future profits arising from the same trade

ITA 2007, ss 83, 64; TCGA 1992, s 261B

This is discussed in detail in the Sole trader losses ― established trades guidance note, which also includes commentary about the temporary extension for the use of trading losses incurred in the 2020/21 and 2021/22 tax years. Relief for trading losses in opening and closing years is discussed in the Sole trader loss relief ― opening years and Sole trader losses on cessation guidance notes.

This guidance note focuses on the planning aspects that need to be considered to ensure the best outcome for the taxpayer.