John Cotter
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Trading losses are they after Annual Investment Allowance?

Trading losses are they after Annual Investment...

Can anyone confirm using the figures below, what is the trading loss that can either be carried forward or set off against earlier years income:

Profit per accounts £3,800

Less AIA (capital expenditure) £5,300

Net business loss for tax purposes £1500

Is the trading loss £1,500 or is it actually a profit of £3,800?

If it is a loss of £1500, I want to offset this against prior years tax paid under PAYE, if I can.  This is the first year of trade.

Frustrated as I cannot see an clarity on HMRC's site to this rather basic point!

Sorry if I am being stupid.


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31st Jan 2012 16:22

Tax or accounting?

You need to be clear on the difference between profit for accounts and tax purposes.

Trading profit for accounting purposes is £3,800, this is what will appear in the accounts.

Taxable loss is £1,500, which should be in the tax computation.

Ordinarily losses can only be offset against profit from the same trade. As the loss has been incurred inside the first four years of trading you can make a claim under ICTA88s380/381. I would suggest you speak to an accountant though.


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31st Jan 2012 16:58

Hate to be picky

As KA says you calculate the basic business profit and Capital Allowances separately (showing them individually on the SE pages of the tax return) but then the latter are, in effect, extra expenses and so you show a net trading loss of £1,500.

There are two loss reliefs that involve carry back. 

First, the carry back up to 3 years that KA is referring to, is now in ITA 2007 S72 but I'm pretty sure (under S73) you have to set it against the earlier year first, so you have to start with income 3 years back & work forward.

Second: I've never used this in a first year but I've seen nothing that stops you using the ordinary sideways relief for trading losses (ITA 2007 S64(2)(a) or (b)) in which in (a) you can set the loss off against the other income of the same year OR in (b) you set it against other income of the previous tax year.

So I think the latter is what you want to do, filling in the loss carry back box on the tax return and stating in the Additional Info box that you are carrying back the loss against other income of the previous year under ITA 2007 S64(2)(b).



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31st Jan 2012 17:09

Well done...

...Paul, brought me up to date :o)



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31st Jan 2012 17:59

Thanks very much to you both for your excellent advice.

I had two separate calculations in the accounts I prepared and by using the AIA box to show capital expenditure on the SA return, was comfortable with the two methods of calculation.

I was unsure whether it was the adjusted loss after AIA I could use for the purposes of set off.


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