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HMRC internal manual

Business Income Manual

Trade losses - restriction of relief: introduction

S66 Income Tax Act 2007 (ITA 2007)

There is no relief under S64 ITA 2007 unless the trade (including a profession or vocation) is commercial, that is, unless it is carried on throughout the basis period for the tax year:

  1. on a commercial basis, and
  2. with the view to the realisation of profits of the trade (S66(2) ITA 2007).

Before applying this test in S66(2) ITA 2007 the first matter to be considered is whether the activities that are being carried on actually amount to trading. If the activities do not amount to trading then the losses are not trade losses and are not available for relief. See BIM20050 onwards in relation to what constitutes trading activities.

If the activities constitute a trade it is then necessary to apply the test in S66 ITA 2007, see BIM85705.

As regards the restriction of loss relief claimed under S72 ITA 2007 (losses in early year of trade), see BIM85735.