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HMRC internal manual

Business Income Manual

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HM Revenue & Customs
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Trade losses - claims for relief: part claims and priority of claims

Income Tax Act 2007 (ITA 2007):

S64 - Relief against general income for the same and/or the previous year. (BIM85015)

S72 - Relief for losses in the first four years of trade. (BIM85045)

S83 - Relief against subsequent trade profits. (BIM85060)

S86 - Relief for losses where trade is transferred to a company. (BIM85060)

S89 - Terminal loss relief. (BIM85055)

In deciding whether a loss relief claim is validly made, it is necessary to understand how different claims interact. A number of general points arise:

  1. Any claim must be for the full amount of the loss made and not already utilised. Partial claims are not permitted (Butt v Haxby [1982] 56TC547). 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 wasting personal allowances. If the loss exceeds total income against which the relief is to be given, any balance may be the subject of a different claim.
  2. Each pound of loss is relieved once and once only. A loss relieved under S64 or S72 ITA 2007 is not relievable by aggregation in a subsequent year (S206 Income Tax (Trading and Other Income) Act 2005). And an amount of loss relieved by aggregation or by a loss relief claim may not be claimed under any other loss relief provision (S63 ITA 2007).
  3. Relief under S83, S86 or S89 ITA 2007 is given solely against trading profits. Relief under S64 or S72 ITA 2007 is, by contrast, given against total income of which trading profits form a part.

As a consequence, the former reliefs are in strictness to be given in priority to the latter ones.

However, relief under S64 or S72 ITA 2007 may effectively become final before the S83, S86 or S89 relief is given. In these circumstances, there are no provisions which allow the relief under S64 or S72 to be withdrawn, and so the ‘finalised’ relief must take priority over any other relief for the same year which is claimed later. Where an individual makes claims under S64 or S72 as well as under S89, you should in practice allow whichever claim the trader chooses to become effectively final first. This enables traders to choose the priority of these reliefs in these limited circumstances.

  1. Relief may be claimed under S64 ITA 2007 for both a current year loss and a loss of the following year `against’ the same year’s income. In such a case, the loss of the earlier year must be relieved in full before applying any relief in respect of the loss of the later year (S65(3) ITA 2007). (See BIM85015 for an example of how the priority rule works.)
  2. Where, in addition to a claim for relief under S64 ITA 2007, a claim is made for the same year under S131 ITA 2007 for relief for a capital loss on qualifying shares (EIS and initial subscribers), the Section 131 relief is to be allowed in priority to the relief under Section 64 (S133(4) ITA 2007). See VCM45000 onwards.
  3. No other statutory provision specifically sets out any order of priority of allowance of different reliefs claimed in respect of the same loss. In the absence of any such priority, the taxpayer should be invited to specify in which order claims are to be finalised.