An important area in the tax exams is sole trader losses. These losses can be offset against the total income of either the current or previous tax years. The claim cannot be restricted and usually results in the loss of the personal allowance.

After offsetting the loss against total income, the claim can be extended to cover the capital gains of the same tax year.

In opening years, a special loss relief is available for trading losses incurred in the first 4 years of trading. The loss is computed based on the CYB opening year rules. Remember you can never have overlap losses.

The loss can then be carried back 3 years against total income to yield a tax refund.

In closing years, terminal loss relief can be claimed. The loss has 3 elements: loss from the 6th April to the date of cessation, remainder of the loss for the balance of the 12 months preceding cessation and overlap profits( expense).

The terminal loss can be carried back against the trading profits of the 3 previous tax years on a LIFO basis to yield a tax refund.

If you are planning on doing Advanced Tax in December 2022 or March 2023, I recommend you purchase Advanced Tax Condensed which will allow you to learn the technical rules If you then practice the key questions I recommend, you too will be ready for anything the examiner throws at you. This book will really make the difference. You can purchase it using the link below:

 #neildacosta #tradinglosses #advancedtax #kaplan #accaglobal