Utilising tax losses

We have listed below a few of the ways you can make best use of tax losses. Generally speaking, a tax loss arises when a claim for expenses and other allowances (for example capital allowances for equipment purchases) exceeds the income of the relevant trade.

Many losses arise as a direct result of a difficult period of trading. Accordingly, the loss has in most instances reduced your business working capital and in particular your cash flow.

If possible, it is a good idea to utilise these losses as quickly as possible so that any recovery of tax already paid, generally when trading was better, can be recovered to help re-establish cash flow. The remainder of this post sketches out the choices available.

Ongoing trade losses

These losses can be used in a number of ways:

  • You can set losses against income, or possibly against capital gains, of the same year or an earlier tax year.
  • You can set-off against profits of the same trade in future years.
  • You can set-off against 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.

Terminal losses

These arise when a trade finishes and makes a loss in the final period of trading. It is possible to make a claim for losses in the final 12 months of trading to be used in the tax year that you make the loss or the previous three tax years.

There are caps on the amount of loss you can utilise in any one tax year. And care should be taken when making claims to ensure that you do not lose entitlement to your personal tax allowance when making a claim.

If in doubt seek professional advice.

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