How Can I Offset Trade Loss Against My Income?

Q. A business colleague has recently recommended I look into how I set off my trade loss against my general income. This is not something I was aware of previously. I’ve been trading for six years. I made a loss of £20,000 in the year ending 30/9/22 (my accounts are made up to end of September each year). My total income for 2022-23 was £30k but just £10k in the previous year.

A: You will have options to look at under the Income Tax Act 2007 (ITA 2007). The alternatives, under 64 of the act, allow for the loss of £20k to be relieved. Alternatively, you could choose to set £10k against 2021-22 and £10k against 2022-23.

You could choose to set all your losses of £20k against your whole income for 2022-23. To decide on the best option, let’s compare the general income in the year of the loss and preceding year.

Your £10k income for 2021-22 is already covered by the £12,570 tax-free personal allowance. But the general income you had of £30k for the next year is above that same allowance.

So, on that basis you are unlikely to benefit by carrying the £20k loss back to 21-22 – as your income fell below the personal allowance and you had no tax liability for that year. But you could benefit by using the loss against your income for 2022-23 – i.e. against the £30k. You would inevitably lose some of your personal allowance but would have any tax deducted that year either refunded or set off.

We should clarify here also that when we talk about ‘general income’, that means the whole income for all sources of income chargeable to income tax for the tax year. And it’s also important to state there must be no partial claims – any claim must be for the full amount of the loss made.



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