Losses under the cash basis

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The cash basis is now the default

HMRC’s manual explains that Finance Act 2024 changed the cash basis for tax years from 2024-25: all eligible businesses must use the cash basis from 6 April 2024 unless they elect to work out profits under generally accepted accounting practice. GOV.UK now describes cash basis accounting as the standard way to record income and expenses for sole traders and partnerships without corporate partners.

Some businesses can’t use it at all — for example companies, LLPs, partnerships with a corporate partner, and a few specialist cases listed in HMRC’s manual (BIM72010).

What changed for losses

Before 2024/25, a trading loss worked out on the cash basis could only be carried forward or used on cessation — section 74E of the Income Tax Act 2007 barred sideways relief and relief against gains. That section was omitted from 6 April 2024 by Finance Act 2024.

The government’s policy paper put it plainly: the change allows cash basis losses to be used in the same way as accruals basis losses — set sideways against general income, or carried back to earlier years, subject to the same general loss relief rules.

So for a 2026/27 trading loss worked out on the cash basis, the full set of reliefs is open to you: sideways relief, early years relief, carry forward and terminal relief — with the usual conditions and the cap.

Landlords: a different rule

The 2024 change was for trades. Property businesses have their own cash basis (the default for most individual landlords with property receipts of £150,000 or less, according to HMRC’s Property Income Manual). Section 127BA of the Income Tax Act 2007 — still in force — says no property loss relief against general income can be given for a loss worked out on the cash basis. Carry-forward against future rental profits still works. See rental property losses.

The trading allowance

If you use the £1,000 trading income allowance instead of deducting your actual expenses, you can’t create a loss with it. HMRC’s self-employment notes say that if your expenses are higher than your income and you want relief for the loss, deduct your actual expenses rather than claiming the allowance.

Questions people ask

I use the cash basis. Can I still set my trading loss against other income?

Yes, for losses from 2024/25 onwards. The restriction on cash-basis trading losses was removed from 6 April 2024, so they can be used like any other trading loss. (Cash-basis losses for 2013-14 to 2023-24 still can’t be set against other income, and property businesses on the cash basis still can’t get sideways relief.)

Sources

Checked 4 October 2026 for the 2026/27 tax year. We read these primary sources for this guide:

1. HMRC Business Income Manual BIM70000: Cash basis (gov.uk)
2. HMRC Business Income Manual BIM72010: Cash basis eligibility (gov.uk)
3. HMRC Business Income Manual BIM85000: Trade losses (gov.uk)
4. Income Tax Act 2007, section 74E (omitted from 2024-25) (legislation.gov.uk)
5. HM Treasury / HMRC policy paper: Expanding the cash basis (gov.uk)
6. GOV.UK: Cash basis (gov.uk)
7. Income Tax Act 2007, section 127BA (property cash basis) (legislation.gov.uk)
8. HMRC Property Income Manual PIM1092: Cash basis for landlords (gov.uk)

Contains public sector information licensed under the Open Government Licence v3.0. This guide adapts and summarises that information in our own words. taxloss.co.uk is an independent guide. It is not affiliated with, endorsed by or connected to HM Revenue & Customs (HMRC) or the UK Government. Spotted something out of date? Tell us.

More on self-employed & partnership losses

• 09Self-employed losses: your options at a glanceIf your trade, profession or vocation makes a loss, income tax law gives you several ways to use it — against other income this year or last, against capital gains, back against earlier years at the start or end of a business, or forward against future profits.
• 10Setting a trading loss against other income (sideways relief)Sideways relief lets you set a trading loss against your total income — a salary, pension, savings or rental income — for the tax year of the loss, the year before, or both. Any unused part can be set against capital gains.
• 11Carrying a trading loss forwardA trading loss you don’t use in other ways can be carried forward and set against later profits of the same trade, first available profits first, for as long as the trade continues.
• 12Early years loss relief: losses in the first four yearsA loss in the first four tax years of a new trade can be carried back against your total income of the three tax years before the loss, earliest year first — often giving a repayment of tax you paid as an employee.
• 13Terminal loss relief when a business stopsWhen you permanently stop trading, the loss of your final 12 months can be carried back against profits of the same trade in the final tax year and the three tax years before it, latest year first.
• 14The cap on loss relief and other restrictionsSeveral loss reliefs against general income are capped at £50,000 or 25% of adjusted total income, whichever is higher. Non-active traders and some partners face a separate £25,000 limit, and uncommercial trades get no sideways relief at all.
• 16Partnership lossesWhen a partnership makes a loss, each partner is treated as having a loss from their own notional trade and claims relief for their share on their own tax return. Limited and non-active partners face extra limits.