Owner-Managed Businesses

Sole trader losses on cessation

Produced by Tolley
  • 21 Mar 2022 07:22

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

  • Sole trader losses on cessation
  • Introduction
  • Simplified cash basis
  • Terminal loss relief
  • Making a claim for terminal loss relief
  • Post cessation losses
  • Losses remaining at incorporation

Sole trader losses on cessation


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) that are available depend on whether the trade has started within the last four years, or 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.

Simplified cash basis

Unincorporated businesses with turnovers 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.

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.

For restrictions relating to losses incurred by sole traders using the simplified cash basis, see the Eligibility for the simplified cash basis guidance

Access this article and thousands of others like it
free for 7 days with a trial of TolleyGuidance.

There's no margin for error. Think Tax.
Think Tolley.

TolleyGuidance gives you direct access to critical, comprehensive and up-to-date tax information and expertise you can rely on.


Popular Articles

Capital vs revenue expenditure

Capital vs revenue expenditureExpenditure of a capital nature is not allowed as a deduction when calculating trading profits. Expenditure of a revenue nature is allowable, provided there is no specific statutory rule prohibiting a deduction and the expenditure also satisfies the wholly and

21 Mar 2022 07:23 | Produced by Tolley Read more Read more

Subsistence expenses

IntroductionSubsistence is the amount incurred as a consequence of business travel. Typically it relates to accommodation and meal costs incurred. These amounts are allowed because they are associated with the necessary travel. See the Travel expenses guidance note for more information of when

22 Mar 2022 12:13 | Produced by Tolley in association with Philip Rutherford Read more Read more

Share for share exchange

This guidance note considers the capital gains tax implications where shares are sold in exchange for new shares.The consideration paid by a purchasing company to the shareholder(s) for their shares in a target company could be in the form of either:•new shares in the purchasing company in exchange

16 May 2022 13:23 | Produced by Tolley Read more Read more