The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:
When a sole trader or partnership makes a loss, the trading income assessment (ie taxable profit for the year) is nil. Losses are generally computed in the same way as profits.
The loss relief claim(s) which are available depend on whether the trade has started within the last four years, is a continuing trade or the trade has ceased.
This guidance note concentrates on claims that can be made for trading losses in the 12 months prior to cessation of the trade.
For a comparison of the various loss relief claims, see the Table ― trading loss relief summary.
HMRC has published a toolkit entitled ‘Income tax losses’ , which aims to help reduce errors on Tax Returns. Use of HMRC’s toolkits should be proof of reasonable care.
Terminal loss relief is not included in the cap on unlimited income tax reliefs. This is because the anti-avoidance provision targets reliefs against total income rather than just against trading profits. For more information, see the Cap on unlimited income tax reliefs guidance note.
Unincorporated businesses with turnover of less than £150,000 (or £300,000 for universal credit claimants) can opt to use the simplified cash basis. These turnover thresholds apply from 2017/18 onwards. For the thresholds that applied between 2013/14 and 2016/17, see the Simplified cash basis for small unincorporated businesses guidance note.
Unlike other reliefs for trading losses, those within the simplified cash basis can claim terminal loss relief for losses in the last 12 months of trading.
Before considering the potential claims for loss relief, you need to be comfortable that the loss is allowable.
For a loss to obtain relief under the provisions discussed below, it must arise from a trade.
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