Part of the government’s Covid measures include relief for unincorporated businesses that incurred losses as a result of the pandemic. Note this only applies to the self employed and to partnerships for the two years 2020/21 and 2021/22. No one likes losses. The best one can do is find a way in which these can be relieved against other profits and/or other income. But the path is narrow and requires careful attention.
Sideways Loss Relief
This relief is the normal route to take with losses. The losses can be claimed against other income in the year of loss or against general income (trading profits and other income) in the previous tax year.
Note there must be a sideways loss claim in either or both of 2020/21 or 2019/20 for extended loss claims to qualify.
Extended Loss Relief
If there are still unrelieved losses after a sideways claim then further relief can be achieved against profits in the two previous years, always taking the last year first.
Example
Adam was hit badly by Covid. His trading results for the last four years were as follows:
| Year Ended 31st March 2021 | (120,000) |
| Year Ended 31st March 2020 | 40,000 |
| Year Ended 31st March 2019 | 30,000 |
| Year Ended 31st March 2018 | 50,000 |
Total Income in each of these years was:
| Profits | Rent | Dividends | Total | |
| 2020/21 | – | 9,000 | 4,500 | 13,500 |
| 2019/20 | 40,000 | 8,500 | 5,000 | 53,500 |
| 2018/19 | 30,000 | 8,500 | 5,000 | 43,500 |
| 2017/18 | 50,000 | 8,000 | 5,000 | 63,000 |
Adam makes no sideways claim for 2020/21 because other income is already covered by personal/dividend allowances.
However, he makes a sideways claim for 2019/20 which looks like this:
| Loss | ||
| Loss Available | (120,000) | |
| Trading Profits | 40,000 | |
| Other income | 13,500 | |
| 53,500 | ||
| Sideways Loss | (53,500) | 53,500 |
| £ – | ||
| £ (66,500) |
Having made a sideways loss claim, Adam can now make an extended loss relief claim for 2018/19:
| Loss | ||
| Loss Available | (66,500) | |
| Trading Profits | 30,000 | |
| Extended Loss Relief | (30,000) | 30,000 |
| £ – | ||
| Rent | 8,500 | |
| Dividends | 5,000 | |
| £13,500 | ||
| Reduced Loss | £ (36,500) |
As there are still losses available, Adam can make yet another claim for 2017/18:
| Loss Available | (36,500) | |
| Trading Profits | 50,000 | |
| Extended Loss Relief | (36,500) | 36,500 |
| 13,500 | ||
| Rent | 8,000 | |
| Dividends | 5,000 | |
| £26,500 | ||
| Balance of Losses | £ – |
Two points to note:
a) Extended losses can only be set against trading profits in 2018/19 and 2017/18
b) Had there been some unutilized losses in 2017/18 these could then be carried forward to the year 2021/22
Extended loss relief is a temporary relief to cope with Covid problems. The relief only applies to losses arising in the years 2020/21 and 2021/22.
Need help? Contact C&H Stedman.
