Early years loss relief: losses in the first four years

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Who it is for

Section 72 of the Income Tax Act 2007 lets an individual claim "early trade losses relief" for a loss made in a trade:

• in the tax year the trade is first carried on by them; or
• in any of the next 3 tax years.

HMRC’s manual says it applies to individuals — sole traders and partners, but not trustees — and it applies to farming too.

How it works

The loss is deducted from your net income for the 3 tax years before the loss year, starting with the earliest (section 73). That is the opposite order to terminal loss relief.

2023/242024/252025/262026/272027/28later →

Trading loss: early yearsFirst 4 tax years of a business

3 years back · earliest first

(loss)

Trading loss: sideways reliefThis year and/or the year before

previous year

(loss)

Unused loss carried forward

carry backcarry forward(loss) = the year the loss arises

For a loss in 2026/27, the business must have started in 2023/24 or later, and the loss goes against your income of:

1. 2023/24 first;
2. then 2024/25;
3. then 2025/26.

2026/27 loss from a business started in 2025/26	minus (£18,000)
Set against 2023/24 total income (employment)	£18,000
Loss left to use	£0
The 2023/24 tax is recalculated and the reduction is usually repaid or set against tax due.

If the loss is bigger than a year’s income, the rest moves on to the next year. Anything still unused can be set sideways or carried forward instead.

The stricter commercial test

Section 74 says early years relief is only available if the trade is carried on throughout the tax year on a commercial basis and in such a way that profits could reasonably be expected in that year or within a reasonable time afterwards. HMRC’s manual reads "reasonable time" as fairly short — say a year or so, depending on the trade.

There is also a rule for couples: you can’t get the relief beyond the first four years if you first carry on the trade while living with a spouse or civil partner who previously carried it on.

A break doesn’t restart the clock. HMRC’s manual says that if you stop a trade and later restart it, you don’t get a new four-year period — because the trade wasn’t "first carried on" by you the second time.

The deadline

The claim must be made on or before the first anniversary of the normal Self Assessment filing date for the year of the loss (section 72(3)).

Early years claim for a 2026/27 loss by 31 January 2029

Claiming

On the 2025–26 self-employment pages, a loss carried back goes in the "loss to be carried back to previous years" box, with details of the amount for each year in "Any other information". A claim that carries a loss back doesn’t have to wait for the loss year’s return — see sideways relief for stand-alone claims.

Early years relief is within the cap on income tax reliefs — see the cap and restrictions.

Questions people ask

My new business made a loss. Can I get back tax I paid as an employee?

Possibly. Early years loss relief lets a loss in the first four tax years of a trade be carried back against your total income of the three previous tax years, earliest first — which can include employment income. There’s a stricter test that profits could reasonably be expected within a reasonable time.

Sources

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

1. Income Tax Act 2007, section 72 (legislation.gov.uk)
2. Income Tax Act 2007, section 73 (legislation.gov.uk)
3. Income Tax Act 2007, section 74 (legislation.gov.uk)
4. HMRC Business Income Manual BIM85045: Relief for losses in early years (gov.uk)
5. HMRC Business Income Manual BIM85050: Early years — when a trade is first carried on (gov.uk)
6. HMRC Business Income Manual BIM85735: Uncommercial losses in early years (gov.uk)
7. HMRC: SA103S Self-employment (short) notes 2026 (gov.uk)
8. HMRC helpsheet HS227: Relief for trading losses (2026) (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.
• 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.
• 15Losses under the cash basisFrom 2024/25 the cash basis is the default way for sole traders and most partnerships to work out profits — and the old restriction on cash-basis trading losses has gone. Landlords are different: property losses on the cash basis still can’t be set against other income.
• 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.