B8.202 Established trade—current and prior year relief for trade losses
For the latest New Development, see ND.1900.
A person who has sustained a trading loss in a tax year can claim relief from income tax by deducting the amount of the loss from his other general income of the year of the loss or the previous year1, provided the trade is 'commercial'2; see What is a commercial trade? below. In addition, as announced at Budget the period over which trading losses can be carried back is to be temporarily extended from 12 months to three years for tax years tax years 2020/21 and 2021/22 for unincorporated businesses, see ND.1900. It is also possible to make an additional claim for offset against capital gains, to the extent that the loss cannot be offset against the other general income3.
This relief (along with relief for losses in the early years of a trade, see B8.206) is referred to as 'sideways loss relief'. There are several restrictions on this relief, namely:
• it is not available if the loss derives from first year or annual investment capital allowances on plant and machinery used for leasing, see B5.4174
• losses from an oil trade are further ring-fenced, see D7.9025
Both reliefs have to be claimed within 12 months from 31 January following the end of the year of loss6. See A4.202 for commentary on the procedures required for the making of a claim.
Offset against general income
Trading losses can relieved by offset against other general