Calculate the carry-back relief available for trading losses in the first 4 years of a new business. Get a year-by-year refund breakdown under s.72 ITA 2007.
Opening Year Relief (s.72 ITA 2007)
Prior Year Income & Tax Paid
Enter income and tax paid for up to 3 years before trading started. Year 1 = 3 years before trade; Year 2 = 2 years before; Year 3 = 1 year before.
3 YEARS BEFORE TRADE
2 YEARS BEFORE TRADE
1 YEAR BEFORE TRADE
How Opening Year Loss Relief Works
Opening year loss relief (s.72 ITA 2007) is one of the most valuable but under-used tax reliefs available to new business owners. It allows losses made in the first 4 years of a trade to be carried back 3 years — rather than just 1 year under the general rule — and set against total income of those years. Because many business founders previously had employment income with tax deducted at source, this can produce a meaningful refund.
For example, a former employee who earns £45,000 a year for 3 years before starting a business, and then makes a £20,000 trading loss in year 1, could claim opening year relief and receive a refund of tax paid in those employment years. The refund is calculated based on the amount of loss absorbed in each year multiplied by the effective rate of tax paid in that year.
The FIFO Carry-Back Order
The critical rule is the order of carry-back. Under s.72 ITA 2007, relief must be given in chronological order — earliest year first (FIFO). This means the loss is first applied against income from 3 years ago, then 2 years ago, then 1 year ago. You cannot choose to apply the loss to the most recent prior year first (LIFO is not permitted for opening year relief).
This contrasts with some other jurisdictions and can be important where tax rates or income levels varied significantly across the 3 prior years. In practice, because most people's income grew over time, FIFO means lower-income years are relieved first, which may produce smaller refunds per pound of loss used in early years. However, the total relief available across all 3 years is maximised by absorbing the full loss if income is available.
Making the Claim
Claims for opening year loss relief must be made within 4 years of the end of the tax year in which the loss arose. For a loss in 2025/26, the claim deadline is 5 April 2030. Claims are made via the Self Assessment return for the year of loss, in the self-employment pages. Alternatively, a claim can be made by letter to HMRC, but the online return is the most straightforward route.
If you have not yet filed a return for the prior years (which would need to be amended to reflect the relief), HMRC can process the carry-back and issue a repayment through the amended return process. Keep documentary evidence of prior year income and tax payments to support the claim.
Frequently Asked Questions
Opening year loss relief (s.72 ITA 2007) allows individuals who make trading losses in the first 4 years of a new trade to carry those losses back up to 3 years and set them against total income of those years, potentially generating a cash refund of tax already paid.
A loss in year 1 of trading can be carried back to the 3 years before year 1. Relief is given in chronological order — earliest year first (FIFO). This is more generous than the general rule which allows carry back to the immediately preceding year only.
Under s.72 ITA 2007, the loss is relieved against income of the earliest year first, then the next year, working forwards in time until the loss is exhausted or all 3 years are used. You cannot choose to apply the loss to the most recent prior year first.
Claims must be made within 4 years of the end of the tax year in which the loss arose. For example, a loss in the tax year ending 5 April 2026 must be claimed by 5 April 2030. Claims are made on the Self Assessment return or by letter to HMRC.
Opening year relief under s.72 and sideways relief under s.64 are alternatives for the same loss. You can generally claim one or the other. The choice depends on which year's income generates the highest refund and your specific tax history.
Opening year losses are set against total income of prior years, which includes employment income, rental income, dividends, savings interest, and any other source. This is the same total income concept as for sideways relief.
The refund for each prior year is calculated as the amount of loss relieved multiplied by the effective tax rate for that year (approximated as tax paid divided by total income). The more income and tax paid in prior years, the higher the potential refund.
No. Section 72 ITA 2007 applies to individuals only. Limited companies use different corporation tax rules. There is no equivalent 3-year carry-back for new companies under CT rules (though temporary extensions existed during the COVID period).
The relief is limited to the total income of each prior year — you cannot get a refund on tax that was not paid. If carry-back years had low income, the refund will be small or zero. Any unused loss can be carried forward against future trading profits of the same trade.
Opening year relief claims affect adjusted net income for the years to which relief is applied. This can affect High Income Child Benefit Charge calculations, personal savings allowance thresholds, and other income-based benefit calculations in those earlier years.
Yes. The fourth year of trade is the last year that qualifies for the special 3-year carry-back. After the fourth year, only the general 1-year carry-back rule applies, plus carry-forward indefinitely against same-trade profits.
Opening year loss relief is available for sole traders and partners in a new trade conducted on a commercial basis with a view to profit. It is not available if the activity is not a genuine trade — e.g. a hobby under the badges of trade test.
Author: Mustafa Bilgic | Last updated: 10 March 2026 | For guidance only. Refund calculations use approximate effective rates. Actual refunds depend on HMRC assessment of prior years. Not tax advice. Consult a qualified tax adviser.