Trading losses for sole traders & companies: Using them effectively

Melanie Richardson


The economy has been hard hit by covid for over a year; with many businesses completely shut for much of 2020. Unincorporated businesses and companies may have even made a loss for the first time. Both can offset losses against profits - make sure that this is accounted for in the optimum way.



Trading losses for sole traders:



As a sole trader there are many ways in which losses can be used with rules extending to partnerships and LLPs. Options include:


  • For losses incurred in the first four tax years of a new unincorporated business, there is the option to carry back the loss against total income of the three preceding years
  • This can potentially lead to large repayments of tax previously paid at the higher or additional rates, if the business owner was previously in high-earning employment. Otherwise, there is normally only a one-year carry-back available against total income
  • The Chancellor has introduced a temporary extension to this one-year loss carry-back, such that trade losses can be carried back a further two years, but against trade profits only.
  • Setting losses against Capital Gains in some circumstances
  • Special rules on cessation of trade and carrying a loss forward against future trading profits


If you are making a loss as a sole-trader and would like more advice on how to use them in the optimum way, do get in touch with your Swindells’ partner who will be able to advise you further.



Trading losses for companies:


Companies are treated differently to individuals and losses have to be used within the company structure.


  • If trading losses in an accounting period are greater than the company’s total profits for that period, there is a one-year carry-back option available for the unrelieved trading loss, against total profits.
  • To help companies generate repayments of tax that can aid their cash flow, the loss carry-back for companies has also been temporarily extended to 3 years, also against total profits.
  • The extended loss carry-back applies for losses made in accounting periods ending in the period from 1 April 2020 to 31 March 2022. For each of these accounting periods, the maximum loss that can be subject to the extended carry-back is £2m.
  • Company trading losses that have been incurred since 1 April 2017 can be carried forward to set against future total profits.



Corporation Tax rates are due to increase significantly for most companies from 1 April 2023. It is important to quantify the possible tax savings from the different loss relief options to ensure the best use of losses.



If, as a company or sole-trader, you are making a loss or have made a loss, do get in touch with your Swindells’ partner as soon as possible so that we can ensure all claim conditions and deadlines are met.

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