Income Tax Act 2007

Carry-forward trade loss relief

83 Carry forward against subsequent trade profits

(1) A person may make a claim for carry-forward trade loss relief if—

(a) the person has made a loss in a trade in a tax year, and

(b) relief for the loss has not been fully given under this Chapter or any other provision of the Income Tax Acts or under section 261B of TCGA 1992 (use of trading loss as a CGT loss).

(2) The claim is for the part of the loss for which relief has not been given under any such provision (“the unrelieved loss”) to be deducted in calculating the person’s net income for subsequent tax years (see Step 2 of the calculation in section 23).

(3) But a deduction for that purpose is to be made only from profits of the trade.

(4) In calculating a person’s net income for a tax year, deductions under this section from the profits of a trade are to be made before deductions of any other reliefs from those profits.

(5) This section applies to professions and vocations as it applies to trades (and section 84 is to be read accordingly).

(6) This section needs to be read with—

(a) section 84 (how relief works),

(b) section 85 (use of trade-related interest and dividends if trade profits insufficient),

(c) section 86 (trade transferred to a company),

(d) section 87 (ring fence trades),

(e) section 88 (carry forward of certain interest as loss), and

(f) sections 17(3) and 852(7) of ITTOIA 2005 (effect of becoming or ceasing to be UK resident).

84 How relief works

This section explains how the deductions are to be made.

The amount of the unrelieved loss to be deducted at any step is limited in accordance with section 25(4) and (5).

• Step 1

  Deduct the unrelieved loss from the profits of the trade of the next tax year.

• Step 2

  Deduct from the profits of the trade of the following tax year the amount of the unrelieved loss not previously deducted.

• Step 3

  Continue to apply Step 2 in relation to the profits of the trade of subsequent tax years until all the unrelieved loss is deducted.

85 Use of trade-related interest and dividends if trade profits insufficient

(1) This section applies if carry-forward trade loss relief cannot be fully given in relation to the profits of a trade of a tax year because (apart from this section) there are no profits, or insufficient profits, of the trade of the tax year.

(2) For the purposes of the relief any interest or dividends for the tax year that relate to the trade are treated as profits of the trade of the tax year.

(3) Interest or dividends for the tax year relate to the trade if they—

(a) arise in the tax year, and

(b) would be brought into account in calculating the profits of the trade but for the fact that they have been subjected to tax under other provisions of the Income Tax Acts.

86 Trade transferred to a company

(1) This section applies if—

(a) a trade is carried on by an individual otherwise than as a partner in a firm or by individuals in partnership,

(b) the trade is transferred to a company,

(c) the consideration for the transfer is wholly or mainly the allotment of shares to the individual or individuals, and

(d) in the case of any individual to whom, or to whose nominee or nominees, shares are so allotted, the individual’s total income for a relevant tax year includes income derived by the individual from the company.

(2) For the purposes of carry-forward trade loss relief, the income so derived is treated as—

(a) profits of the trade of the relevant tax year carried on by the individual, or

(b) if the trade was carried on by the individual in partnership, profits of the individual’s notional trade of the relevant tax year.

(3) The tax year in which the transfer is made is a relevant one if—

(a) the individual is the beneficial owner of the shares allotted as mentioned above, and

(b) the company carries on the trade,

throughout the period beginning with the date of the transfer and ending with the next 5 April.

(4) Otherwise a tax year is a relevant one if—

(a) the individual is the beneficial owner of the shares allotted as mentioned above, and

(b) the company carries on the trade,

throughout the tax year.

(5) The income derived from the company may be by way of dividends on the shares or otherwise.

(6) This section applies to businesses which are not trades as it applies to trades.

87 Ring fence trades

(1) This section applies if—

(a) a person makes a loss in a tax year carrying on oil-related activities (within the meaning of section 16 of ITTOIA 2005),

(b) those activities are treated under that section as a separate trade for the tax year or a subsequent tax year,

(c) the person makes profits in a subsequent tax year from other activities, and

(d) the other activities and the oil-related activities would, but for that section, together form a single trade.

(2) For the purposes of carry-forward trade loss relief for the loss, the person may treat profits from the other activities in a subsequent tax year as if they were profits of the separate trade (despite section 16 of ITTOIA 2005).

88 Carry forward of certain interest as loss

(1) This section applies if—

(a) an individual pays interest in a tax year which is eligible for relief under section 383 (as a result of section 388 or 398),

(b) the interest is an expense incurred wholly and exclusively for the purposes of a trade carried on wholly or partly in the United Kingdom, and

(c) relief under section 383 cannot be fully given in respect of the interest because there is no income or insufficient income in the tax year.

(2) For the purposes of carry-forward trade loss relief, the amount for which relief has not been given may be carried forward to subsequent tax years as if it were a loss made in the trade.

(3) This section applies to professions and vocations as it applies to trades.