AITI Chartered Tax Adviser

What relief is available for losses?

You can use a trading or professional loss to reduce your income from all sources by the amount of the loss. The order of set off is firstly against your earned income (i.e., income from a trade, profession or employment), then against unearned income (i.e., income from investments and property). If you are jointly assessed with your spouse, any remaining excess can be applied in the same order against your spouse’s income.
You can carry forward any remaining balance for set off against trading or professional income of the next and later tax years. You must use the carried forward loss in the next tax year in which you have (trading or professional) profits. You must claim loss relief (on your income tax return) within two years of the end of the tax year in which the loss arose.

You can use the capital allowances for a tax year to create or augment a trading loss incurred in your tax year’s basis period (the accounts period on which your profits are based), but only in so far as those allowances are not needed to reduce balancing charges for that year. Balancing charges must be reduced by capital allowances brought forward before being reduced by current capital allowances.

A terminal loss is the loss you incur as a trader (or professional person) in the 12 months ending on the date you permanently cease to trade, as increased by any unused capital allowances which are proper to that 12 month period.
You may carry back a terminal loss and set it against the profits of the trader (or professional person) for each of the three tax years immediately preceding the tax year in which your business ceased.