Self-employed losses: your options at a glance

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How a trading loss arises

A loss from a trade, profession or vocation is calculated on the same basis as a profit: your business income less allowable expenses and capital allowances. HMRC’s manual makes the point that relief for a trading loss is not automatic — it needs a formal claim.

Since 2024/25 sole traders are taxed on the profits or losses of the tax year (6 April to 5 April). If your accounts end on another date, the figures are apportioned — by days, unless you consistently use another reasonable method. HMRC’s manual gives an example of a business with accounts to 31 December where a loss in the second year is partly apportioned into 2026-27 (BIM81201).

The reliefs at a glance

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

You can also set a trading loss against income from a company you transfer the business to, if you take shares in return (s86) — a specialist case.

Rules that apply to every claim

• No partial claims. HMRC’s manual says a claim must be for the full loss, as far as the income allows — even if that wastes your Personal Allowance for the year.
• Each pound of loss is relieved once. Choose the order of claims carefully.
• Restrictions and a cap. Sideways and early years relief are only available for trades run commercially, and are within the cap on income tax reliefs (the greater of £50,000 and 25% of adjusted total income). Non-active traders face a further £25,000 limit. See the cap and restrictions.
• Cash basis. From 2024/25 losses worked out on the cash basis can be used in the same ways as other trading losses — see losses under the cash basis.

Choosing between them

Which relief is best depends on your tax rates in each year, whether you’d waste your Personal Allowance, and how soon you expect profits. Relief against an earlier year can give a repayment sooner; carrying forward can be worth more if you expect to pay a higher rate later. Our Which loss relief? checker points you to the right guides, and the deadline calculator gives the dates. For larger losses, professional advice is often worth paying for.

Sources

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

1. HMRC Business Income Manual BIM85010: Trade losses — types of relief (gov.uk)
2. HMRC Business Income Manual BIM85065: Trade losses — claims to relief (gov.uk)
3. HMRC Business Income Manual BIM85080: Part claims and priority of claims (gov.uk)
4. HMRC Business Income Manual BIM81201: Tax year basis from 2024-25 (gov.uk)
5. HMRC helpsheet HS227: Relief for trading losses (2026) (gov.uk)
6. Income Tax Act 2007, section 60 (legislation.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

• 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.
• 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.