BIM75050 - Trade losses: general matters: when a loss is made

The statutory provisions allow a claim for a loss made in a tax year in a trade, profession or vocation, subject to the claim being made within the time limit (see BIM75200 onwards). We do not insist that loss relief claims should be quantified precisely. A ’best estimate’ claim could be made in advance of accounts being prepared, with the final figure following as soon as possible.

Even if we are satisfied that there is likely to be an economic loss (i.e. the outgoings will exceed all possible income for the period) it is not possible to say that a loss has been made for tax purposes until the accounting period is complete.

In the case of Jones v O’Brien [1988] 60TC706, involving profits from trade carried on abroad, what was Case V income, Hoffman J held that the Revenue could not raise an in-year estimated assessment on income assessed on a current year basis:

Schedule D charges annual profits or gains and tax chargeable under Case V on profits or gains arising in Ireland is computed on the full amount of the income arising in the year of assessment. There is no charge to tax on the income per diem in diem as it arises during the year. In my view the imposition of liability to tax on the full amount of the income arising in a year necessarily entails that the year has elapsed. Until then the profits in respect of which he is liable to tax will not exist and therefore no charge to tax can attach. (714)

ITTOIA/S26 provides that a trade loss is calculated on the same basis as a profit This means that the comments in the O’Brien case are equally applicable to losses.

The same principle applies where the results of more than one accounting period are required to compute the profit/loss for a tax year.

For example, a trader’s first accounting period may run from 1 December 2007 to 31 January 2008 and give rise to a loss. But loss relief cannot be claimed until all of the periods of account which make up the basis period for 2007- 08 are complete. Only then is it possible to say whether a loss has been made for 2007-08.

But, in a continuing business with an annual accounting date of 31 January, a trader could make a claim on say 28 February 2008, to relief for losses made in the accounts to 31 January 2008 (2007-08) against general income for 2006-07. This would constitute a stand-alone claim (TMA70/SCH1B). We would not need to know the profit or loss for the rest of 2007-08 because that profit or loss relates to 2008-09 and all the periods of account (the periods for which accounts are drawn up) which are included in the basis period for 2007-08 are complete.

For further information on claims generally see SACM; in particular, information on claims affecting two or more years is at SACM11005-11045.