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Business Income Manual

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Trade losses - types of relief: Extended loss relief - 2008-09 and 2009-10 losses

S64 Income Tax Act 2007 (ITA 2007), Sch 6 Finance Act 2009 (FA 2009)

There are temporary rules for trade losses made in tax years 2008-09 and 2009-10 that enable losses to be carried back against profits of the same trade for up to three earlier years.

The extended relief is available where a person has made a loss in a trade (including a profession or vocation) in 2008-09 or 2009-10, and:

  • the loss is eligible for trade loss relief under S64 ITA 2007 (Relief against general income),
  • the person makes a claim under S64 ITA 2007 for the loss in the year of the loss, the preceding year or both.

The extended relief may also be claimed where the trade loss is eligible for trade loss relief under S64 ITA 2007 but a claim cannot be made as the person’s total income for the year of the loss and the preceding year is nil, or does not include any income which could be relieved.

As the extended relief is only available for an amount of a trade loss that is also eligible for relief under S64 ITA 2007 this means that restrictions that apply to those loss relief claims also have effect for the purpose of extended loss relief claims

A claim for the extended relief may only be made for the amount of the trade loss which remains unrelieved after any S64 ITA 2007 claim for the loss is taken into account.

Where a claim is made under S64 ITA 2007 for the year of loss only, any unrelieved loss may be carried back against profits of the same trade for up to three prior years, latest years first. For example, for a loss made in 2008-09, relief is by reference to the profits of the trade of 2007-08, then 2006-07, then 2005-06. There is no limit on the amount of the unrelieved loss that may be carried back against profit of the same trade in the year preceding the year of loss. The amount of loss that can be relieved against the trade profit of the two earlier years is, however, capped at £50,000 in total for each year of loss.

Where the S64 ITA 2007 claim is for, or includes, relief against income of the preceding year, any unrelieved loss may be carried back against profits of the same trade in the two years before the preceding year, latest year first. So in the case of the 2008-09 loss above the extended relief is by reference to profits of the trade in 2006-07 then 2005-06. The amount of loss that can be relieved against the trade profit of the two earlier years is capped at £50,000 in total for each year of loss.

A person who makes losses in more than one trade, as sole trader or partner, in 2008-09 and/or 2009-10 may make a claim for this extended relief for each loss making trade and each year of loss.

The time limit for the claim was 12 months after 31 January next following the year in which the loss is made, so the latest date at which a claim could be made was 31 January 2012.

The following examples illustrate how the extended loss relief provision works:

Example 1 - S64 ITA 2007 claim is against income of the year of loss.

Mike makes a loss of £100,000 in his trade in 2008-09. He claims S64 ITA 2007 and FA 2009 relief by 31 January 2011. None of the restrictions on Section 64 relief apply.

  Trade Employment Loss relief Loss relief  
           
Year profit income Loss used Stat. ref. Notes
2008-09 (100,000) 35,000 35,000 S64(2)(a) ITA 2007  
2007-08 55,000 30,000 55,000 Sch6 FA 2009 (1)
2006-07 45,000 25,000 10,000 Sch6 FA 2009 (2)
2005-06 50,000 20,000 nil    

Notes

  1. Losses used by reference to profits of the trade in the year preceding the year of loss, are not capped. £55,000 of the 2008-2009 loss is used by reference to profit of the trade in 2007-08.2. The loss remaining unused is £10,000 (£100,000 - [35,000 + 55,000]). This is less than the £50,000 cap on losses used by reference to the 2 earliest years so the entire £10,000 loss remaining is used by reference to profit in the trade in 2006-07.

Mike also makes a loss in the trade in 2009-10 and claims FA 2009 relief by 31 January 2012. None of the restrictions on S64 ITA 2007 relief apply. Mike has no income for Section 64 relief purposes in 2009-10. Because Mike made a claim under Section 64 for the loss made in 2008-09 to be set against general income in that year, he also has no more relievable income in 2008-09.

FA 2009 relief for the loss of 2009-10 is as follows:

Year Trade Employment Loss relief Loss relief Notes
           
  Profit/(loss) income Loss used Stat. ref.  
2009-10 (60,000) nil nil   (1)
2008-09 (100,000) 35,000 nil   (1)
2007-08 55,000 30,000 nil   (2)
2006-07 45,000 25,000 35,000 Sch6 FA 2009 (3)

Notes

  1. A S64 ITA 2007 claim cannot be made as Mike has no income for the loss year 2009-10 nor, because of the claim made for the 2008-09 loss, for the preceding year.
  2. Profit of the trade in 2007-08 is nil, for the purposes of the FA 2009 claim in respect of the 2009-10 loss, because it was extinguished by the claim made for the 2008-09 loss.
  3. Profit of the trade in 2006-07 for the purposes of the FA 2009 claim in respect of the 2009-10 loss is £35,000, because of the claim made for the 2008-09 loss. £35,000 of the 2009-10 loss is used by reference to trade profit of 2006-07. Relief is by reference to profit of the same trade for up to three earlier years so 2006-07 is the earliest year for the purpose of the claim under FA 2009 in respect of the 2009-10 loss. £25,000 (£60,000 - 35,000) of the 2009-10 loss remains unused and may be carried forward.

Example 2 - S64 ITA 2007 claim is against income of the year of loss and the preceding year.

Jane makes a loss of £130,000 in her trade in 2009-10. She claims S64 ITA 2007 and FA 2009 relief by 31 January 2012. None of the restrictions on Section 64 relief apply.

  Trade Employment Loss relief Loss relief Notes
           
Year profit income Loss used Stat. ref.  
2009-10 (130,000) 10,000 10,000 S64(2)(c) ITA 2007  
2008-09 40,000 5,000 45,000 S64(2)(c) ITA 2007  
2007-08 30,000 5,000 30,000 Sch6 FA 2009 (1)
2006-07 25,000 5,000 20,000 Sch6 FA 2009 (2)

Notes

  1. £75,000 of the £130,000 loss remains unused following the S64 ITA 2007 claim. Losses used by reference to trade profits for 2007-08 are £30,000. The 2009-10 loss remaining unused is £45,000.

  2. Although £45,000 of the 2009-10 trade losses remains unused, the £50,000 cap on relief by reference to the two earliest years restricts the loss relieved by reference to profit of 2006-07 to £20,000 (£50,000 - 30,000). £25,000 of the 2009-10 loss remains unused and may be carried forward.