What is sideways loss relief for traders?

Sideways loss relief (s.64 ITA 2007) allows self-employed individuals to offset a trading loss against their total income in the same tax year. This can include salary, rental income, dividends or other sources, potentially generating a tax refund or reducing tax due.

Can I carry a trading loss back to the previous year?

Yes. Under s.64 ITA 2007, if you cannot fully use a trading loss against current year income, or you choose to, you can carry it back to offset against total income of the immediately preceding tax year. This can generate a tax refund based on tax already paid.

What is the cap on sideways loss relief?

For most commercial trades, sideways loss relief is uncapped. However, a 25% of adjusted total income cap applies in certain circumstances, particularly where losses arise from activities with a non-commercial element. Unlimited sideways relief is available for fully commercial trades.

How does carry forward of trading losses work?

Trading losses carried forward can only be set against future trading profits from the same trade (s.83 ITA 2007). There is no time limit on carrying losses forward, but they cannot be used against non-trading income in future years unless specific rules apply.

What is the opening year loss relief carry-back period?

For the first 4 years of a trade, losses can be carried back up to 3 years against total income of those years, on a FIFO (earliest year first) basis under s.72 ITA 2007. This is more generous than the standard 1-year carry-back.

Are there any restrictions on sideways loss relief for limited partners?

Yes. Limited partners and members of LLPs have capital contribution-based restrictions on sideways loss relief. The cap limits relief to the amount of capital contributed to the partnership.

Can I choose which option to use for my trading loss?

Yes. You can choose between current year relief, carry back, and carry forward. You can also split a loss between options in some circumstances. The choice must be made on your Self Assessment return and is generally irrevocable once the time limit has passed.

What is the time limit for claiming trading loss relief?

Claims for sideways relief and carry back must generally be made within 4 years of the end of the tax year in which the loss arose. Carry forward relief is automatic and does not require a separate claim.

Do I need to be actually trading to claim sideways loss relief?

The trade must be genuine and conducted on a commercial basis with a view to profit. HMRC may challenge losses from activities that appear to be hobbies or have no realistic profit expectation.

How does loss relief affect my Personal Allowance?

Using sideways relief can reduce your taxable income below your Personal Allowance (£12,570 in 2025/26), but you cannot claim a refund of tax relief on income that was already covered by the Personal Allowance. Unused Personal Allowance cannot be carried forward.

Can a company use s.64 sideways loss relief?

No. Section 64 ITA 2007 applies to individuals. Companies use different rules under CTA 2010 for trading losses, including group relief and carry back provisions under corporation tax rules.

What happens if my loss exceeds my total income for both years?

Any remaining loss after exhausting current year and carry-back relief can be carried forward indefinitely against future profits of the same trade. It does not expire, but it can only be used against trading income from the same trade.

Is there a minimum loss amount to qualify for loss relief?

No statutory minimum. Even small trading losses qualify for relief, provided the trade is commercial. However, de minimis practical considerations may apply if the administrative cost of a claim outweighs the tax saving.

Trade Loss Relief Calculator 2025/26

Calculate sideways loss relief, carry back and carry forward options for your self-employed trading loss. Compare all three options and find the best tax saving.

Loss Relief Options (s.64 ITA 2007)

Trading loss this year (£)

Total income this year (excluding trading) (£)

Total income last year (£)

Tax paid last year (£)

Tax rate this year

Apply 25% sideways relief cap?

How Trade Loss Relief Works

When a self-employed individual or sole trader makes a trading loss, HMRC provides several options for using that loss to reduce tax. The rules are contained in sections 60–101 of the Income Tax Act 2007 (ITA 2007). Understanding the options is essential because the wrong choice can leave money on the table or create unexpected cash-flow problems.

The most immediate option is current year sideways relief under s.64 ITA 2007, which allows you to set the loss against your total income for the same tax year. This can include employment income, rental income, dividends, savings interest, or any other source of income. The relief reduces your Income Tax liability for that year, potentially generating a repayment if tax has already been deducted at source.

If the loss exceeds your current year income, or if you choose not to use current year relief, you can carry the loss back one year and set it against total income of the previous tax year. Any tax refund generated depends on your effective tax rate in that prior year, calculated as tax paid divided by total income.

Any remaining loss after current year and carry-back relief is automatically carried forward under s.83 ITA 2007. Carried-forward losses can only be used against future trading profits from the same trade. There is no time limit, but the loss cannot be used against other income sources in future years.

The 25% Cap on Sideways Relief

For most commercial trades, sideways relief under s.64 is fully uncapped. However, a cap of 25% of adjusted total income (or £50,000 if higher) was introduced to prevent wealthy individuals from using artificial loss schemes to reduce substantial non-trading income. For genuine businesses conducted with a view to profit, the cap should not restrict relief. If in doubt, seek professional advice from a qualified tax adviser or accountant.

Opening Year Relief — First 4 Years

Businesses in the first 4 years of trading have access to additional carry-back relief under s.72 ITA 2007. Losses arising in the first 4 years can be carried back 3 years (rather than just 1 year under general rules). Losses are relieved against earlier years first (FIFO order), and the carry-back can generate substantial refunds for individuals who had significant income before starting their business. This is covered in the Opening Year Loss Relief Calculator.

Choosing the Best Option

The best option depends on your marginal tax rates in each year, the availability of income to relieve, and your cash-flow position. Current year relief gives the fastest benefit if you expect a tax bill. Carry-back relief generates a cash refund but requires filing an amended return or making a specific claim. Carry-forward is useful if you expect future trading profits but provides no immediate cash benefit.

You can combine options — for example, claiming partial current year relief and carrying forward the remainder. You can also choose to forgo current year relief entirely and carry forward, which may be beneficial if your current year income is modest and you expect higher future profits at a higher tax rate.

Frequently Asked Questions

Author: Mustafa Bilgic | Last updated: 10 March 2026 | This calculator is for guidance only and does not constitute tax advice. Always consult a qualified tax adviser for your specific circumstances.