Offsetting trading losses

If, whilst employed and paying tax, I set up as a sole trader as well, can I offset any trading losses against the PAYE I pay?

1st September 2013

As long as you are genuinely in business to earn a profit then yes, you can offset your losses against current year income or against past or future profits of the trade itself.

You should only claim relief for your loss if you ran your trade commercially for profit. If it was more of a hobby, you should only use the losses against future profits from your self-employment; HMRC will not like you to use to loss against your employment income.

Assuming your business was run on a commercial basis, you can offset your losses in several ways:

  • other income for the same year or the previous year
  • gains for the same year or the previous year - if your other income is used up
  • other income in the previous three years if your business started within the past four years
  • profits from the business in later years
  • profits for the business in the previous three years if your business has ceased

In order to declare the loss and subsequently make use of it, you will need to register for Self Assessment with HMRC and complete a tax return.

Utilising losses is a complex area. I would encourage you to approach a professional for advice, such as your local TaxAssist Accountant. Please contact us if you would be like to put in touch with your local office to discuss this further.

By Jo Nockels

Disclaimer: Advice shared in this blog 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 forum, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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