TRADING LOSSES (Ch 10)

What basis of assessment applies to continuing trades from 2024/25, and what if accounts are not ready?

Tax year basis: profits arising 6 April to 5 April. Use estimates, then amend within 12 months of the filing date.

What is the assessment period for the first and final year of a trade?

First year: commencement to the following 5 April. Final year: 6 April to cessation.

How are transition profits taxed and what do they affect?

1/5 per year over 2023/24–2027/28, as a separate entry (not merged with trading profit). They increase ANI (can abate the PA) and are included in Class 4 profits.

What is entered in the income tax computation if a trade makes a loss, and how is the loss calculated?

Nil (never negative). Calculated like a profit, including capital allowances.

For total-income relief of a trading loss, which years are available and in what order is income relieved?

Year of loss and/or the preceding year (your choice of order). Set off: non-savings → savings → dividends.

Is total-income relief for a trading loss all-or-nothing?

Yes, the maximum must be used even if the PA or nil rate bands are wasted.

What are the condition and deadline for claiming trading loss relief against total income?

Trade run commercially with a view to profit. Claim by 31 January, 22 months after the end of the loss tax year.

What is the cap on trading loss relief against total income, and which reliefs does it not apply to?

Higher of £50,000 or 25% of adjusted total income (after gross personal pension). Applies to sideways relief (including early trade loss relief); NOT to carry-forward, terminal loss, or relief against the same trade's profits.

How does carry-forward relief for a trading loss work?

Automatic if no other claim; against the first available profits of the SAME trade; must be established within 4 years of the end of the loss year. Not available after cessation.

Can a trading loss be set against chargeable gains, and what is the maximum?

Only after total income relief has been claimed. Maximum: net chargeable gains less capital losses brought forward.

How does early trade loss relief work?

Losses in the first 4 tax years; carried back against the 3 preceding years, earliest year first (FIFO). All-or-nothing across the years. Subject to the £50,000/25% cap.

How does terminal loss relief work (years, order, income, deadline)?

Year of cessation + 3 preceding years, LIFO (latest first). Against trading income only. Claim by 5 April, 4 years after the end of the last trading tax year.

What are the two components of a terminal loss?

(a) Final tax year: unrelieved loss from 6 April to cessation. (b) Penultimate year: unrelieved loss from 12 months before cessation to 5 April. A component that is a profit is nil and does not reduce the other.

What factors should be considered when choosing which trading loss relief to claim?

Marginal tax rate, timing of tax repayment, and risk of wasting the PA or nil rate bands.