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identify and critically assess the different ways in which

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identify and critically assess the different ways in which income tax can be claimed when a sole trader makes a loss? Critically analyse the advantages and disadvantages
Hello, I'm Keith and happy to help you with your question. A great deal depends upon the actual figures involved. To make any meaningful response without this data is impossible.

How the trade loss can be utilised.

Case 1

Normal time limit Loss relief provision

Relief: set off against general income and chargeable gains of the same tax year or previous tax year.

Normal time limits:

Within 12 months from 31 January after the end of the tax year in which the loss occurs.


Ss64 and 71 Income Tax Act, 2007 and s261B Taxation of Chargeable Gains Act, 1992.

Case 2.

Carry forward and set against future trade profits of the same trade.

Normal time limits:

Within four years from the end of the tax year in which the loss occurs.


S83 Income Tax Act, 2007

Case 3

Set off of new business trade losses against general income of the
three tax years before the year of loss, with relief given for earlier
years first

Normal time limits:

Within 12 months from 31 January after the end of the tax year in which the loss occurs.


S72 Income Tax Act, 2007

Case 4

Set off of terminal losses against profits of the same trade of the
final tax year and the previous three years, with relief given for later years first.

Normal time limits:

Within four years from the end of the tax year in which the trade


S89 Income Tax Act, 2007


A claim must be made in a return or amended return, if possible, or otherwise may be made by letter. Any claims must be for the full amount of the loss made, less any of that loss already utilised. Partial claims are not allowed. This means that a loss set against income for a particular year must be set as far as possible against that income, even if this means that personal allowances available for that year are not fully utilised.

For further guidance see HMRC guidance notices BIM85080 and SACM3015+. You must read HMRC Income Tax Losses Tool Kit which gives a full breakdown of this highly complex subject which cannot be covered without full details of the losses incurred, the other income and capital gains in that year and the income and capital gains in all other possible years in which relief might be claimed. This is a highly complex subject and you are well advised to consult a trusted, local accountant to guide you through the maze of this area of taxation and the pitfalls in which you may inadvertently fall if you use the wrong approach eg losing your personal allowance either in full or in part.
Customer: replied 3 years ago.

is each case an example of how income tax can be claimed and what is an advantage for each one of those? Also what is starting uo loss relief, carry across and back relief and carry forward relief

Sorry for the delayed response. I am answering this question from Thailand and we are 6 hours ahead of the UK and so I was asleep.

Each case is separate. You can offset against income and gains in the current year. That is the most common solution, but care must be taken not to eliminate your personal allowance as a result.

You can carry the loss forward against next year's profits from the same trade. You have four years in which to do this.

You can carry a new business trade loss back up to three years, but the oldest year's profits are the first to be relieved.

If this is a terminal loss [going out of business] you can carry losses back three years starting with the latest first; the reverse of the previous case.

Without quantative data I cannot advise on the efficacy on any of the four methods of claiming trading loss relief.
Customer: replied 3 years ago.

Thank you for your help, i just have one finally question and this is whether you know of website or articles extra whereby i could receive this data?

If you Google 'uk tax self employed losses' you will be presented with a plethora of advice sites. Some good, some not so easy to fathom. Having said that I have distilled the general advice on losses into my answers to your question. If your position is highly complex it may be adviseable to consult locally as I suggested in my original answer.

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