Unincorporated trader losses

Question 1

Results of a trading loss

Answer 1

Trading income recorded as nil
Tax relief can be obtained for the loss

Question 2

s.64

Answer 2

Current year and / or prior year loss relief
Set against total income and then can be extended against net gains
All or nothing
12 months from 31 January following the tax year of the loss

Question 3

s.83

Answer 3

Carry forward loss relief
Set against first available future trading profits from the same trade
Indefinite time limit
Remaining trading losses after any s.64 claim are automatically carried forward

Question 4

Factors to consider when choosing which loss relief to use

Answer 4

Rate of income tax applying in the relevant tax years
Possible wasting of the personal allowance
Timing of the loss relief - earlier is best for cashflow

Question 5

Setting trading losses against chargeable gains

Answer 5

s.261B
Claimed after a s.64 claim for trading losses against general income
Claim made for any unrelieved part of the trading loss to be set against the trader’s capital gains for that tax year

Question 6

Writing about loss relief in the exam

Answer 6

How much loss will be used
In which tax year it will be used
What it will be used against (general / trading income)

Question 7

s.72

Answer 7

Available for trading losses incurred in any of the first four tax years
Set-off against total income of three tax years preceding the tax year of the loss on a FIFO basis
If used, trader must first carry the loss back to use against the general income three tax years prior, then two, then one
All or nothing

Question 8

Loss relief and national insurance contributions

Answer 8

Loss relief under s.64, s.72 or s.83 against trading income reduces both the income tax and class 4 NICs on the trading income
Loss relief under s.64 or s.72 against non0trading income only applies for income tax purposes
Losses treated as if carried forward for class 4 national insurance purposes to be set off against trading income in future years

Question 9

s.89

Answer 9

Terminal loss relief on cessation
Set against trading profits
Loss available for relief is the loss of the last 12 months of trading
Relief given against trading income in the final tax year and the previous three tax years on a LIFO basis
All or nothing

Question 10

Restrictions on the use of losses by non-active traders

Answer 10

Loss relief against non-trading income is restricted to £25k per tax year when the individual does not devote at least 10 hours a week to the trade
Any remaining loss carried forward against future profits from the same trade

Question 11

Limit on the amount of relief a trader can get when setting trading losses against non-trading income in a particular tax year

Answer 11

The higher of
- £50,000
- 25% of adjusted total income