BIM75415 - Trade losses: types of relief: extended loss relief; 2008-09 and 2009-10 losses

There are temporary rules in FA09/Sch6 for trade losses made in tax years 2008-09 and 2009-10 that enable losses to be carried back against profits of the same trade for up to 3 earlier years.

The extended relief is available where a person has made a loss in a trade, profession or vocation in 2008-09 or 2009-10, and;

• The loss is eligible for trade loss relief under ITA07/S64
• The person makes a claim under ITA07/S64 for the loss in either the year of the loss, the preceding year or both.

The extended relief may also be claimed where the trade loss is eligible for trade loss relief under ITA07/S64 but an ITA07/S64 claim cannot be made as the person’s total income for the year of the loss and the preceding year is nil, or does not include any income which could be relieved under ITA07/S64.

As the extended relief is only available for an amount of a trade loss that is also eligible for relief under ITA07/S64 this means that restrictions that apply to ITA07/S64 loss relief claims also have effect for the purpose of extended loss relief claims

A claim for the extended relief may only be made for the amount of the trade loss which remains unrelieved after any ITA07/S64 claim for the loss is taken into account.

Where a claim is made under ITA07/S64 for the year of loss only, any unrelieved loss may be carried back against profits of the same trade for up to 3 prior years, latest years first. For example, for a loss made in 2008-09, relief is by reference to the profits of the trade of 2007-08, then 2006-07, then 2005-06. There is no limit on the amount of the unrelieved loss that may be carried back against profit of the same trade in the year preceding the year of loss. The amount of loss that can be relieved against the trade profit of the 2 earlier years is, however, capped at £50,000 in total for each year of loss.

Where the ITA07/S64 claim is for, or includes, relief against income of the preceding year, any unrelieved loss may be carried back against profits of the same trade in the 2 years before the preceding year, latest year first. So in the case of the 2008-09 loss above the extended relief is by reference to profits of the trade in 2006-07 then 2005-06. The amount of loss that can be relieved against the trade profit of the 2 earlier years is capped at £50,000 in total for each year of loss.

A person who makes losses in more than one trade, as sole trader or partner, in 2008-09 and/or 2009-10 may make a claim for FA09/Sch6 relief for each loss making trade and each year of loss.

The time limit for the claim is 12 months after 31 January next following the year in which the loss is made.

The following examples illustrate how the extended loss relief provision works:-

Example 1 -S64 claim is against income of the year of loss.

Mike makes a loss of £100,000 in his trade in 2008-09. He claims ITA07/S64(2)(a) and FA09/Sch6 relief by 31 January 2011. None of the restrictions on ITA07/S64 relief apply.

The £100,000 loss has been fully used by 2006-07.

Mike also makes a loss in the trade in 2009-10 and claims FA09/Sch6 relief by 31 January 2012. None of the restrictions on ITA07/S64 relief apply. Mike has no income for ITA07/S64 relief purposes in 2009-10. Because Mike made a claim for ITA07/S64(2)(a) relief for the loss made in 2008-09, mike also has no income for ITA07/S64 relief purposes in 2008-09.

FA09/Sch6 relief for the loss of 2009-10 is as follows:

2006-07 is the earliest year for FA09/Sch6 relief for the 2009-10 losses. £25,000 losses of 2009-10 remain unused and may be carried forward.

Example 2 - S64 claim is against income of the year of loss and the preceding year.

Jane makes a loss of £130,000 in her trade in 2009-10. She claims ITA07/S64(2)(c) and FA09/Sch6 relief by 31 January 2012. None of the restrictions on ITA07/S64 relief apply.

£105,000 of the 2009-10 loss has been used. £25,000 losses remain unused and may be carried forward.