Making a taxable loss claim

When you make a taxable loss, you may choose how the loss should be relieved by making one of a number of loss relief claims.

Each loss claim comes with its own rules and restrictions but these are the main options you will have:

• Set losses against other income of the same tax year
• Set losses against other income of the previous tax year
• Set the loss against capital gains – this can only be done where you have already set the trade loss against your other income
• In the opening years of a trade (first four tax years of trading), you can claim a special early year loss relief. This sets your loss back against income of the three preceding tax years, taking the earlier years first
• When you cease business, terminal loss relief can also be available
• Carry forward losses and set them against future trading income of the same trade

Finally, for trade losses of tax years 2020/21 and 2021/22 special additional relief may be available to you by carrying back any unrelieved losses and setting these against profits of your trade for three years before the tax year of the loss. These new rules have arisen in response to the Covid-19 pandemic and although we cannot yet process these claims, we can certainly look to see what options would be available to you and help you plan ahead.

As you can see, there are a number of options and certain restrictions also apply when making loss claims.

You should always look to set your loss against income suffering a higher marginal rate of tax to maximise your refund. This means you should try to use your loss against income taxed at 45%, then income taxed at 40%, and finally income taxed at 20%.

Equally, if you are setting your loss against other income, such as dividend income, you should again look to save tax at the highest marginal rate. As well as maximising the income tax claim, it is also important not to forget national insurance and you should also look to maximise the claim for Class 4 national insurance, where relevant.

Date published 24 May 2021

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.