How to make the most of tax losses

Source: HM Revenue & Customs | | 28/09/2017

There are a number of tax reliefs available for self-employed taxpayers that make a loss carrying on their trade, profession or vocation (collectively referred to as a ‘trade’) and for their share of partnership losses.

For the 2016-17 tax year, trade losses can be relieved in a number of ways. These include:

  • By using the loss to reduce income for the year ended 5 April 2017 and / or 5 April 2016. If there are still some further trade losses remaining (after income has been reduced to nil), then it may be possible to set-off some or all of the remaining loss against chargeable gains.
  • A claim can also be made for losses made in the first 4 years of trade known as early trade losses relief. Taxpayers need to look at the earliest year first (i.e. 2013-14) and use any remaining loss in 2014-15 and then in 2015-16. This relief is not available if you started your trade before 6 April 2013. The time limit for making claims for 2016 to 2017 losses is 31 January 2019.
  • Taxpayers can also carry forward any loss against future profits of the same trade or income from the company (where you transfer your trade to a company in exchange for shares in that company), or post cessation receipts
  • Terminal loss relief is available for businesses that suffer a loss in the last 12 months of trade of a business.  Terminal loss relief allows for the carry back of any trading losses that occur in the final 12 months of trading to be set off against profits made during the businesses final tax year or any or all of the previous three tax years.

Planning note

There are many restrictions on claiming certain types of relief and it is important to take tax advice to ensure that any losses are treated in the optimum way for your circumstances. For example:

  • There is an overall cap on certain income tax reliefs. The cap, which includes tax losses, is set at 25% of income or £50,000, whichever is the greater, and
  • Care needs to be taken when utilising tax losses to avoid any loss of other personal tax allowances.

Finally, it can be advantageous to set losses against the taxed profits of previous years as this will generally result in a tax refund. We can help with the calculations and determine the best use of loss reliefs available.



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