Reduce Tax for Previous Losses - “Loss Relief”

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A mathematician might call a loss a “negative profit”. Would you expect a loss to lead to a “negative  tax bill” ie being paid by HMRC? Seems fanciful, but actually there is something not a million miles away - you can reduce the taxable profit in past or future years by adding losses to those profits. So while this is not exactly a “negative tax bill”, if you have profitable years then it can act like one. Result!


There are three mechanisms to consider

  • Carry forward ie take the loss to set off against a future years profit. The losses must be set off against the first profitable year (or profitable years where the loss equals many years of profits). Please note that capital allowances can also be carried forward where they are not used.
  • Carry back ie set off the loss against last years profit (for a limited company) or against the preceding three years general income for sole traders and partnerships.
  • For sole traders and partnerships, the loss can be set off against income, hence reducing personal taxation. Please see personal taxation for both types of business as corporation tax does not apply.