Claiming Trading Losses – Sole Traders

Sole traders and partnerships financially impacted by Covid, many seeing losses for the first time, can claim back or offset tax paid, over extended trading periods.

With the economy hit hard by Covid, a greater flexibility on cash flow has been granted by the UK government with these new temporary increased extension rules.

What are the rules?

• Tax will be repaid where a business losing money today was profitable before.
• The extended carry back can be used for losses for 2020/21 and 2021/22.
• For losses incurred in the first 3 tax years of a new sole trader business, an option exists to carry back the loss against total income of the 3 previous years.
• Potentially large repayments of tax paid at high rates if earning high previously.
• Those on lower rates usually doing a one year carry back, can now do a 2 year carry back.
• Other options for losses can include setting them against Capital Gains, special rules of cessation of trade and carrying a loss forward against future profits.
• Different rules exist for trading companies.

And also:

• This new relief will also apply to Class 4 National Insurance Contributions.
• The relief will apply to trading losses from a Furnished Holiday Letting business.
• Relief is not available for uncommercial trades.
• Claims can be made in a tax return.
• Where a claim affects more than one tax year, a standalone claim can be made.
• The time limit for making a claim in respect of the 2021 tax year is 31 January 2023, and 31 January 2024 for a claim in the 2022 tax year.

Let’s Talk

Our team of tax specialists can help make the most of your cash flow, to ensure optimum ways to use carry back rules to maximise tax repayments. And by handling the various dates claims must be made by: Talk to Us>.