BIM75410 - Trading losses: types of relief: relief against general income

Relief under ICTA88/S380 extends to:

1. trades, professions or vocations assessable under Case I or II, Schedule D, provided they are carried on on a commercial basis and with a view to the realisation of profits (ICTA88/S384);
   
   
2. mines quarries and other concerns within ICTA88/S55 (see BIM60200 onwards);
   
   
3. employment, (see BIM75240).

Relief for losses is given against general income. It does not include chargeable gains unless a supplementary claim under FA91/S72 is made, (see BIM75420 onwards).

A person (individual, partner or trustee) who makes a loss in a tax year may claim relief for that year from income tax on:

• income of that year (ICTA88/S380(1)(a));
• income of the previous year (ICTA88/S380(1)(b)), (see BIM75205);
• or both.

Priority of relief where loss arises in only one year

If a loss is the subject of claims for both the current year and the previous year, the individual can choose which claim has priority. However partial claims cannot be made for each year, (see BIM75215), only the balance of the loss can be used in the other year.

Example

Mark has been carrying on business for a number of years and makes up his accounts annually to 30 September. He sustains a loss of £20,000 in the year ended 30 September 2001 that is for the tax year 2001-02. He can relieve that loss either against his other income in 2001-02 (ICTA88/S380 (1) (a)) or his other income in 2000-01 (ICTA88/S380 (1) (b)). In either case the claim must be made by 31 January 2004.

If the loss is to be the subject of claims for both years Mark can choose which claim has priority. But, because partial claims cannot be made (see BIM75215), only the balance of the loss can be used in the other year.

If Mark had other income of £22,000 in 2001-02 and £5,000 in 2000-01, the alternative reliefs under S380 would be:

• £20,000 against 2001-02,
• £5,000 against 2000-01 and £15,000 against 2001-02.

It is not possible to relieve, say £2,000 in 2000/01 and £18,000 in 2001-02. The claim for each year must be the smaller of the loss available for relief and the income available to be relieved.

Priority of relief where losses arise in more than one year

Income of one year may be covered by losses from two different years. If Mark also made a loss of £3,500 in 2002-03, the 2001-02 other income of £22,000 can be covered by:

• £20,000 from the 2001-02 loss

plus

• £2,000 from 2002-03 loss.

Where this happens, the claim to the loss of the same year takes priority (ICTA88/S380 (2)). In this example the 2001-02 income could not be covered by losses of £3,500 from 2002-03 and £18,500 from 2001-02.

As regards activities which may have been set up with the primary object of creating artificial losses on which relief is claimed under ICTA88/S380 or ICTA88/S381, see BIM75740.

As regards certain losses and certain forms of income which are not eligible for relief under ICTA88/S380, for example uncommercial losses, see BIM75700 onwards.