Income tax trading loss questions feature regularly in the tax exams, and it is an area most students struggle with despite it being fairly logical.

The trading loss can be offset against the total income of either the current or the previous tax year so will result in an immediate tax savings.

The claim is an all or nothing claim and should not be made if the income is less than the personal allowance as this will result in the personal allowance being wasted. (If you don’t use you lose it, like your muscles!)

 The other important point to bear in mind is that maximum offset against non-trading income is restricted to the higher of £50,000 and income. This information is always provided in the tax rates.

Alternatively, the trading loss can be carried forward against future trading profits of the same trade. The disadvantage here is tax relief is given in the future.

If you are planning on doing Tax or Advanced Tax in March, I recommend you master trading losses as they are likely to be examined. Why not get my condensed notes to learn all the technical areas efficiently so you can practice exam questions ?

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