Offsetting Losses from a Soletrader Business

I started my own business last year, and due to some significant initial start up costs I made a substantial loss in my first period of trading? Can I claim relief for these losses, and receive a tax refund?

1st March 2010

You have a number of options with regard to claiming relief for your losses, and the amount of tax refunded will depend on the rate of tax you paid in previous years.

You can offset the loss against the income you earned in the current or previous tax years. The options available are carrying the loss back against other income you received in the tax year arising 3 years previous; or set it against other income in the tax year of the loss; or set it against other income in the previous tax year.

Your total taxable income is reduced by the amount of the loss, and as a higher rate tax payer in all of these years, you will receive up to a 40% tax refund for the losses you have made. If circumstances were different, and neither of these options are beneficial, you can choose to carry the loss forward and set it against future profits from your business.

One other useful point to note is that you are also entitled, under any of the options above, to obtain national insurance class 4 relief for the losses. This can provide you up to a further 8% relief through a reduction in your national insurance liability on future profits from your business.

In all cases it is best to seek advice from your local TaxAssist Accountant on this subject, and establish which option is most tax efficient, and provides you with the greatest tax refund with a calculation.

By Jo Nockels

Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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