Sole trader loss relief ― opening years

By Tolley

The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Sole trader loss relief ― opening years
  • Carry back of losses in opening years
  • Potential restrictions on availability of losses
  • Overlap losses

For restrictions relating to losses incurred by sole traders using the simplified cash basis, see the Simplified cash basis for small businesses guidance note.

Carry back of losses in opening years

Losses incurred in the course of carrying on a trade, profession or vocation in the first four years of trading can be relieved against the trader’s other income of the three tax years preceding the year of loss.

ITA 2007, ss 72–74

As an example, if a trade commences on 1 January 2015 (ie in 2014/15) the special loss relief will be available in respect of losses sustained in 2014/15, 2015/16, 2016/17 and 2017/18. Trading losses in each of these years can be carried back for three years.

When a sole trader makes a loss, the trading income assessment (ie the taxable profit for the year) is nil. Losses are computed in the same way as profits.

Relief for opening year losses is given on making a claim by the first anniversary of 31 January following the year in which the loss arose.

No partial claims are permitted. If the taxpayer wishes to make a claim then the lo

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