Setting a trading loss against other income (sideways relief)

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What sideways relief does

Under section 64 of the Income Tax Act 2007, if you carry on a trade and make a loss in a tax year, you can claim for the loss to be deducted in working out your net income for:

• the loss-making year;
• the previous tax year; or
• both — in which case the claim must say which year is relieved first.

"General income" means your income from all sources — employment, pensions, savings, dividends, rental profits — not just the business. That is why it is called sideways relief.

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

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

No partial claims

HMRC’s manual (BIM85080) is firm: a claim is for the full amount of the loss not already used. You can’t choose to relieve only part of a year’s income to protect your Personal Allowance. HMRC’s own example (BIM85015) shows the choice you do have:

Loss for the year	minus (£20,000)
Income: £22,000 in the loss year, £5,000 in the year before.
Option A: £20,000 against the loss year.
Option B: £5,000 against the previous year, then £15,000 against the loss year.
Not allowed: say £2,000 against the previous year and £18,000 against the loss year.

The claim for each year must be the smaller of the loss available and the income available.

Extending the claim to capital gains

If your income isn’t enough to absorb the loss, section 71 and section 261B of the Taxation of Chargeable Gains Act 1992 let you treat the unused part as a capital loss for the same year. You can claim this even if your total income is nil. HMRC’s manual explains the limit: the relief can’t exceed your net gains for the year (after your capital losses, ignoring the annual exempt amount), and it can’t create a capital loss to carry forward. The cap on income tax reliefs does not limit trade losses set against gains, according to HMRC’s helpsheet HS204.

Conditions and limits

• Commercial trade. Section 66 says sideways relief isn’t available unless the trade is carried on throughout the tax year on a commercial basis and with a view to profit. HMRC stresses that commercial doesn’t mean profitable — the target is hobbies.
• Farming. Sideways relief is generally denied after 5 consecutive years of farming losses (section 67), with exceptions.
• Non-active traders. If you spend less than an average of 10 hours a week on the trade, sideways relief is capped at £25,000 a year.
• The general cap. Sideways relief is one of the reliefs limited to the greater of £50,000 and 25% of your adjusted total income.

All of these are explained in the cap on loss relief and other restrictions.

The deadline

Section 64(5) requires the claim on or before the first anniversary of the normal Self Assessment filing date for the loss-making year. The filing date is 31 January after the tax year, so:

How to claim

On the 2025–26 self-employment pages there is a box for the loss set against other income of the same year, and another for a loss carried back to earlier years (with details in "Any other information"). HMRC’s manual says claims that carry a loss back to an earlier year don’t have to be made in a return — they can be stand-alone claims, even before the loss year’s return is filed. HS227 lists what a stand-alone claim letter should include: your name, address and UTR, the name of your trade, the amount and period of the loss, and how you want to use it. See where losses go on your return.

Anything not relieved sideways is carried forward against future profits of the same trade.

Questions people ask

Can a loss from my self-employment reduce the tax on my salary?

Yes, usually. Sideways relief lets you set a trading loss against your total income — including a salary — for the year of the loss, the year before, or both. The trade must be commercial, partial claims aren’t allowed, and the relief is capped at £50,000 or 25% of adjusted total income if higher. For a 2026/27 loss, claim by 31 January 2029.

What is the deadline to claim sideways relief for a 2025/26 trading loss?

31 January 2028 — the first anniversary of the 31 January 2027 filing date (Income Tax Act 2007 s64(5)). HMRC’s 2026 partnership notes give the same date. HMRC’s 2026 helpsheet HS227 says 31 January 2027, which doesn’t match the legislation.

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 64 (legislation.gov.uk)
2. Income Tax Act 2007, section 66 (commercial basis) (legislation.gov.uk)
3. Income Tax Act 2007, section 989 (normal filing date) (legislation.gov.uk)
4. Taxation of Chargeable Gains Act 1992, section 261B (legislation.gov.uk)
5. HMRC Business Income Manual BIM85015: Relief against general income (gov.uk)
6. HMRC Business Income Manual BIM85030: Relief against chargeable gains (gov.uk)
7. HMRC Business Income Manual BIM85070: Claims involving more than one year (gov.uk)
8. HMRC Business Income Manual BIM85075: Time limits for claims (gov.uk)
9. HMRC helpsheet HS227: Relief for trading losses (2026) (gov.uk)
10. HMRC: SA104S Partnership (short) notes 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.
• 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.
• 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.