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 incurred by ongoing trades (ie trades not in the first four years of trading or in the 12 months to cessation).
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.
Trading loss reliefs are included in the cap on unlimited income tax reliefs (see below).
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.
While within the simplified cash basis, trading losses cannot be used against other income. Neither can trading losses be carried back to be utilised against profits from the same trade or against capital gains. Losses can only be carried forward and set against profits from the same trade under ITA 2007, s 83 (see below).
For continuing trades, losses may be relieved against the following:
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