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HMRC internal manual

Business Income Manual

restriction of relief: non-active traders - basis period straddling 12 March 2008

Generally the £25,000 annual limit applies to losses 2007-2008 onwards. If the basis period for 2007-2008 ends before 12 March 2008 the £25,000 limit does not apply for that year and this measure does not restrict relief for the 2007-2008 losses.

Where the basis period for the tax year in which the loss is made straddles 12 March 2008 (which may be the case for tax year 2007/08 and/or 2008/09) the loss which is subjected to the £25,000 restriction is the loss for the whole basis period for which the trader could otherwise claim sideways loss relief (i.e. after applying all other restrictions in Ch2 Pt4 Income Tax Act 2007 (ITA 2007)) less any ‘pre-announcement loss’.

Pre-announcement loss

The ‘pre-announcement loss’ for the straddling basis period is the sum of:

  • the pre-announcement losses (steps 1 and 2 below), and
  • the loss derived from pre-announcement capital expenditure (step 3 below).

(Step 1) Compute the individual’s profit or loss for the straddling basis period excluding any qualifying film expenditure (to which the £25,000 limit does not apply) and capital allowances.

(Step 2) Apportion the loss, by reference to the number of days prior to 12 March 2008 as a proportion of the number of days in the basis period, to arrive at the loss attributable to that part of the straddling basis period which falls before 12 March 2008.

(Step 3) Calculate the pre-announcement loss derived from relevant pre-announcement capital expenditure that is, expenditure giving rise to capital allowances that was paid by the individual either:

  • before 12 March 2008; or
  • on or after 12 March 2008 to meet an unconditional obligation in a contract made before 12 March 2008 which the individual does not have the right to vary or extinguish,

determined on a just and reasonable basis.


Sole trade commenced 1/11/2007

2007-2008 basis period 1/11/2007 - 05/04/2008 (157 days)
Period 1/11/2007 - 11/03/2008 (132 days)
Period 12/03/2008 - 05/04/2008 ( 25 days)
Loss (excl. capital allowances (CA) and qualifying film expenditure (QFE)) £314,000
Loss (excl. CA and QFE) 1/11/2007 to 11/03/2008 (132/157 x 314,000) £264,000
Pre-announcement capital allowances say £ 10,000
Total pre-announcement loss £274,000

The remaining £50,000 loss (£314,000 less £264,000) and any post announcement Capital Allowances are subject to the £25,000 annual limit on non-active partner, limited partner and non-active sole trader loss relief.

Note: relief may be further restricted where tax avoidance arrangements exist (see BIM85770).

The losses not set against other income or gains are available to carry forward against profits of the trade under S83 ITA 2007.