If you are self-employed or carry on business through a partnership, you may be entitled to claim tax relief where your business makes a trading loss. There are several reliefs available depending on your circumstances, although each loss can only be relieved once and different conditions and claim deadlines apply.
For the 2025/26 tax year, trading losses may generally be offset against your total income of the current tax year and/or the previous tax year (2024/25). Where relief is claimed, losses must normally be used as far as possible in one year before any remaining balance can be utilised elsewhere. If losses are not fully relieved against income, any unused amount may, in certain circumstances, be available to offset against chargeable gains.
Additional relief may be available for new businesses under the early years loss relief rules. Where losses arise within the first four tax years of trading, they may be carried back and set against total income of the previous three tax years (currently 2022/23, 2023/24 and 2024/25), starting with the earliest year first. Claims are generally subject to statutory time limits and, for 2025/26 losses, will normally need to be made by 31 January 2028.
Where losses remain unused, they can usually be carried forward indefinitely and offset against future profits arising from the same trade.
In some circumstances, where a sole trade or partnership business is transferred into a company, additional reliefs may be available following incorporation. The availability of these reliefs will depend on the facts and should be reviewed carefully before restructuring.
If a business ceases trading, terminal loss relief may apply. This allows qualifying losses arising in the final 12 months of trade to be carried back and offset against profits of the same trade for up to the previous three tax years, beginning with the most recent year first.
Tax relief for losses is not available in all circumstances. Relief may be restricted where HMRC considers the trade is not carried on commercially or there is no genuine intention to make a profit. In addition, certain Income Tax reliefs remain subject to an overall cap, generally limited to the higher of £50,000 or 25% of adjusted total income.
Given the interaction between the various loss relief provisions, professional advice should be taken to ensure relief is claimed in the most tax-efficient manner.
