Guidance

HS227 Losses (2024)

Updated 6 April 2024

1. Overview

This helpsheet tells you what you can do if you either:

• make a loss in your trade, profession or vocation (shortened to trade)
• have a share of the trading loss made by a partnership in 2023 to 2024

There is also a working sheet to help you to keep track of your losses.

2. Losses

If you’re self-employed or a member of a trading partnership you’ll usually make a loss when the trade expenses are more than the trade income. The notes for the self-employment and partnership pages of your tax return explain how to work out the profit or loss for tax.

2.1 Partners

Your share of the partnership loss is treated as having arisen from a trade that you carried on alone.

That trade is regarded as having started on the date you became a partner (or the date you started the trade, if you previously carried on the trade on your own account).

It is treated as having ceased on the date you ceased to be a partner (or the date the trade ceased, if you continued to carry on the trade as a sole trader).

3. Using losses: types of claim

Trade losses may be used in a number of ways against:

• income or possibly against capital gains of the same year or an earlier year
• profit of the same trade
• income from a company to which you transferred your trade

Not all losses may be claimed in all of these ways and sometimes the amount of loss you claim is restricted or limited. You will find more information later in the helpsheet.

The following paragraphs describe the different types of claim and the conditions that must be satisfied.

4. Loss relief against income or income and capital gains of the same year or an earlier year

4.1 Loss set-off against income or income and capital gains

You may use the loss against your income of 2023 to 2024 or 2022 to 2023 or both years in any priority. Losses can only be used once.

Partial claims are not allowed so you must use all the loss or relieve as much of the income as possible in a tax year before allocating any remaining balance to other years or claims. If you cannot deduct all of a loss under a claim for trade loss relief against general income you may be able to use any remaining balance, or part of it, against your chargeable gains. You’ll find information on this in SA108 Notes.

5. Loss used against income in 2020 to 2021 to 2022 to 2023: early trade losses relief

You can make this claim for losses made in the first 4 years of trade. Start by reducing the 2020 to 2021 income. If the loss is more than your income, use the remaining loss against your income in 2021 to 2022 and then 2021 to 2023.

Do not make this claim if you, your spouse or civil partner first carried on the trade before 6 April 2020.

If you make any of these claims, make sure that you include losses claimed by you other than in your tax return. The section on stand-alone claims gives more information on this.

If you use the loss against earlier year’s income or capital gains you must also tell us the:

• amount of loss used for each year in the ‘Any other information’ box on the return
• decrease in tax due for earlier years

The Tax Adjustments for earlier years section explains more.

You should read the Relief against income or capital gains: restrictions section before you make your claim.

The time limit for making these claims for 2023 to 2024 losses is 31 January 2026.

6. Relief against income or capital gains: restrictions

Restrictions may apply for claims to use losses against income or capital gains. Some restrictions deny relief. Others limit the amount of loss you can use.

Do not make any of these claims if you:

• use cash basis — you’ll find information on cash basis in Helpsheet 222: How to calculate your taxable profits
• do not run your trade either commercially or for profit, for example if your trade is run as a hobby
• are a farmer or market gardener and you also made a loss (worked out for this purpose only before capital allowances are taken into account) in each of the previous five tax years

Tax-generated losses cannot usually be claimed against income or chargeable gains.

The amount of loss relief you claim against income or capital gains may be restricted or limited for example if you:

• worked for less than 10 hours a week on average on commercial activities of the trade
• are a Limited Partner or a member of a Limited Liability Partnership
• have a trade which is carried on wholly overseas
• have claimed certain capital allowances
• have income from oil extraction activities or oil rights

If you need more information on any of the restrictions on relief, ask us or your tax adviser.

There’s a limit on the total amount of Income Tax reliefs that you may claim for deduction from total income for a tax year. Loss relief is one of the reliefs affected. The limit is the higher of £50,000 and 25% of the adjusted total income of the year. Read Helpsheet 204: Limit on Income Tax reliefs if you think you may be affected by this.

The restrictions and limits do not apply to losses offset against profits of the same trade.

7. Relief against profit of the same trade: loss carried forward

You can carry forward your loss, or the unused part of the loss, and any unused losses from earlier years to use against:

• profits of the trade in later years
• income from a company that you transferred your trade to, wholly or mainly in exchange for shares in the company (pre-incorporation loss relief)

8. Pre-incorporation loss relief

If you have transferred your trade to a company in exchange wholly or mainly for shares and have carried forward losses of the trade, you may be able to set these against income derived from the company, this includes dividends.

The trade must be continued to be carried on by the company throughout the tax year, and you must be the beneficial owner of the shares exchanged throughout the tax year.

If you made the transfer in this tax year, the trade must be carried on by the company from the date of transfer to 5 April 2024. You must also be the beneficial owner of the shares exchanged during this period.

The amount of relief you can claim is the lower of the amount of the loss carried forward, or your income from the company. Any remaining losses should be carried forward to be set against future income from the company provided the conditions for relief continue to be met.

9. Loss carried back: terminal loss relief

You can claim relief for losses in the final 12 months of the trade, against profits in the trade in 2023 to 2024, and in the 3 prior years. Start with the latest year. You must also tell us:

• that your claim is for terminal loss relief
• the amount of loss used for each year
• the decrease in tax due for earlier years

Only make this claim if your trade ceased in 2023 to 2024.

10. How to calculate your terminal loss

1. If your accounts to cessation cover a period of 12 months the loss and any unused overlap profit is your terminal loss
2. If your accounts to cessation cover a period of more than 12 months, your terminal loss is a proportion of the loss and any unused overlap profit
3. If your accounts to cessation cover a period of less than 12 months, your terminal loss is the loss made in 2023 to 2024 and a proportion of the 2022 to 2023 loss and any unused overlap profit
4. If you had a profit in either accounting period, you need to work out the profit or loss in the part of the final 12 month period:

• to 5 April 2023
• from 6 April 2023 to the date of cessation

Treat a profit in either period as a nil loss.

The time limit for claims against profit of the same trade is 5 April 2028.

11. Loss carried back: loss due to overlap relief

You can claim relief if you made a loss in 2023 to 2024 because of overlap relief, or if overlap relief increased the loss. Relief is available as if the loss was a terminal loss and should be claimed against profits in the trade in 2023 to 2024, and in the 3 prior years. Start with the latest year. You must also tell us:

• that your claim is for terminal loss relief due to overlap relief
• the amount of loss used for 2023 to 2024
• the decrease in tax due for earlier years

The amount that can be claimed as if it was a terminal loss is the lower of the amount of the overlap relief and the loss for the year. Any remaining part of the loss is available for relief using the other methods detailed previously in this guidance.

There are examples of how to work out the amount of loss in Business Income Manual paragraph 81300.

The time limit for claims against profit of the same trade is 5 April 2028.

12. Claims not made in a tax return (stand-alone claims)

Normally you’ll make your claim to loss relief in your tax return or amended return. But some claims may be made:

• in advance of the tax return for the year of loss, for example, a claim to include the loss in your PAYE code for the year of loss or a claim for the loss to be relieved by reference to income, profit or capital gains of an earlier year or years - you must also:
  • repeat the claim
  • give us details of the tax repaid or set-off in your tax return for the year of loss
  • after the time limit for amending the tax return has expired, for example a claim to carry losses forward may be made up to 4 years after the end of the year of loss

If you wish to make a stand-alone claim you must write a letter telling us your name, address and Unique Taxpayer Reference (UTR) also:

• the name of your trade
• how much the loss is and for what period
• how you want to use the loss

13. Tax adjustments for earlier years

If you carry back 2023 to 2024 losses to earlier years you must:

• calculate the difference between the actual liability for the earlier year and the liability that would have arisen if the losses you’re now claiming had been included in the tax return for the earlier year — do not include 2023 to 2024 losses for which you previously claimed relief in your calculations — stand-alone claims above — contact Self Assessment: general enquiries if you need help to calculate your tax liability
• enter the difference; that’s the decrease in tax due on the ‘tax calculation summary’ pages (if you file on paper and self-calculate) or the ‘decrease in tax due because of adjustment to an earlier year’ box (if you file online)

14. Summary of allowable loss and how used

Use the working sheet to keep track of your losses and make sure you do not forget to claim relief for any of them.

If you have losses from more than one trade, use a separate working sheet for each trade.

Note that the total losses to be set against income, profit or capital gains for a year cannot exceed the income profit or capital gains of that year.