BIM75410 - Trade losses: types of relief: relief against general income
Relief under ITA07/S64 extends to:
- losses in trades, professions or vocations, provided they are carried on on a commercial basis and with a view to the realisation of profits (ITA07/S66);
- losses arising out of land - mines quarries and other concerns - within ITTOIA/S12 (see BIM60200 onwards);
- but not to relief for losses in an employment or office; these are not trade losses (see BIM75240).
ITA07/S64 relief is against general income of the year of loss, or by reference to general income of the year preceding the year of loss. The relief does not extend to chargeable gains unless a supplementary claim under TCGA92/S261B 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 (ITA07/S64(2)(a));
- by reference to income of the previous year (ITA07/S64(2)(b)), (see BIM75205);
- or both (ITA07/S64(2)(c)).
Temporary extension of ITA07/S64 carry back relief
A person who makes a claim for ITA07/S64 relief for losses made in 2008-09 or 2009-10, or who has no income for ITA07/S64 relief for both the year of loss and the previous year, may make a claim for relief under the extended loss relief provision in FA09/Sch6 (see BIM75415)
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 must specify which claim has priority (ITA07/S64(3)). However partial claims cannot be made for each year, (see BIM75215), only the balance of the loss can be used in/by reference to 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 makes a loss of £20,000 in the year ended 30 September 2007 that is for the tax year 2007-08. He can relieve that loss against his general income in 2007-08 (ITA07/S64(2)(a)) or by reference to his general income in 2006-07 (ITA07/S64((2)(b)) or his general income in both 2006-07 and 2007-08 (ITA07/S64(2)(c). The claim must be made by 31 January 2010.
If the loss is to be the subject of claims for both years, Mark must choose which claim has priority. But partial claims cannot be made (see BIM75215). The loss used in/by reference to the priority year is an amount equal to income of that year. The remaining loss can be used by reference to/in the other year.
If Mark had general income of £22,000 in 2007-08 and £5,000 in 2006-07, the alternative reliefs under S64 would be:
- £20,000 against 2007-08,
- £5,000 by reference to 2006-07 and £15,000 against 2007-08.
It is not possible to relieve, say £2,000 by reference to 2006-07 and £18,000 in 2007-08. 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 2008-09, the 2007-08 income of £22,000 can be covered by:
- £20,000 from the 2007-08 loss
plus
- £2,000 from the 2008-09 loss.
Where this happens, the claim to the loss of the same year takes priority (ITA07/S65(2)). In this example the 2007-08 income could not be covered by losses of £3,500 from 2008-09 and £18,500 from 2007-08.
As regards activities which may have been set up with the primary object of creating artificial losses on which relief is claimed under ITA07/S64 or ITA07/S72, see BIM75740.
As regards certain losses and certain forms of income which are not eligible for relief under ITA07/S64, for example uncommercial losses, see BIM75700onwards.
BIM75205 provides information on claims involving more than one year.
