Relief for self-employed trading losses

Source: HM Revenue & Customs | | 17/09/2020

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 trading loss for any partnerships they are involved with.

For the 2020-21 tax year, trade losses can be relieved in a number of ways. This includes the following:

  • By using the loss to reduce income for the year ended 5 April 2020 and / or 5 April 2019. If there are still trade losses remaining (after your income has been reduced to nil) then you may be able 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. 2016-17) and use any remaining loss in 2017-18 and then in 2018-19. The time limit for making claims for 2019 to 2020 losses is 31 January 2022.
  • Taxpayers can 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 final tax year or any or all of the previous three tax years.
  • Self-employed taxpayers who were previously employed can offset trading losses against employment earnings or other earned income in the current or preceding tax year. 

There is also an overall cap on certain Income Tax reliefs. The cap is set at 25% of income or £50,000, whichever is the greater.



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