Income tax trading loss carry-back

The measure

The government announced an extension of the loss carry back period for unincorporated businesses in respect of trading losses. Current rules allow sole traders and partners to offset trading losses against net income of the current or previous tax year, while the new provision extends this to include the previous three tax years. This mirrors the similar corporation tax provision introduced for incorporated businesses.  


Who will be affected?

This extended carry-back will be subject to separate caps of £2,000,000 for the amount of losses arising in each of the 2020/21 and 2021/22 tax years that are carried back more than one tax year. There will continue to be no cap on the amount of losses offset against the current or prior tax year.

This measure will impact the self-employed who operate as sole traders or partners, allowing them additional scope to receive tax relief for losses incurred. 


When will the measure come into effect?

For income tax purposes this policy will have effect in respect of losses incurred the tax years 2020/21 and 2021/22. 

Our view

This measure will have a positive impact as part of the support available to self-employed traders recovering from the COVID-19 pandemic. The increased ability to receive relief for losses will allow these traders to receive additional tax repayments, supporting their cash flow.