Tax loss
Tax loss is when your allowable costs for a period are higher than your taxable business income, so the result is a negative amount for tax purposes. In the UK, this can be a trading loss from your business activities or a capital loss on selling assets; the reliefs for each work differently.
Losses can reduce tax by being set against profits or gains in certain periods, depending on the rules that apply to your business (sole trader, partnership, or company). You usually claim through your tax return and must keep records that show how the loss arose and how you’ve used it.
Main ways a UK business may use a loss, in outline:
- Carry forward a trading loss to offset future profits of the same trade.
- Set a trading loss against other income from the same or nearby periods (subject to conditions).
- Companies may share some current-period trading losses within a group (group relief).
- Capital losses can generally only reduce capital gains, not trading profits.
Simple example
Your shop has sales of £80 and allowable expenses of £100. You have a £20 trading loss, which you may be able to carry forward to reduce tax on the shop’s future profits.
