No one wants to make a loss. It’s not what you dreamed of when you started your business – but if you know the tax regulations it needn’t be all doom and gloom.
If you’re self-employed or you’re a partner in a business, you’ll make a loss whenever the money going out the door is greater than the money coming in.
I’m sure you knew that already – but did you know that you can reduce your corporation tax by using any losses you make to offset other profits?
How you can do this depends on how your business operates so we’ve outlined some of the options below.
This is not an exhaustive list, just a few common examples we think are most likely to help. So let’s get going….

How to use your losses to reduce tax if you’re a limited company

You lucky, lucky people will find that offsetting your losses is a pretty straightforward process.
Any corporation tax losses can be carried backwards or forwards – backwards against previous-year profits from the same business or forward against future-year profits.
When the company is part of a group you can offset the loss against the profits of another of the group’s companies.
However a quick word of warning if this might apply to you: Conditions for group relief are not the easiest to understand so we’d advise seeking professional advice on your individual circumstances.
Give us a call if you’re not sure where to turn – we’d be only too happy to help.

What you can do with losses when you’re a sole trader

Sole traders have the benefit of a bit more flexibility where offsetting their losses are concerned – always good news!
In addition to the ability to carry your losses backwards or forwards like limited companies, you also have some other options.
These include using your losses to offset any of the following: Capital gains in the year of loss or the preceding year, any other income in the previous tax year or any other income – such as rental income – in the same year.
You can also carry back any losses you make in your first four years against income from up to three years before.
For example, let’s say James started up a business during 2012-13, making a loss of £6,000 for that year and an £8,000 loss for the following year.
Before starting his business James had been employed so he can use his 2012-13 loss against his total income for and 2009-10, 2010-11 and 2011-12.
Crucially, he can also use his 2013-14 loss of £8,000 against his total income for 2012-13, 2011-12 and 2010-11.
If you are a high earner, it is also worth considering that sideways loss relief is restricted to the larger of 25 per cent of income or £50,000.

How partnerships and LLPs can use losses most effectively

Nice and simple – just think of a partnership as a shared sole trade – losses can be used in the same way as those of a sole trader. Easy peasy!
Hopefully you’re feeling a bit more positive about things now – if you know the tax regulations losses don’t have to be the be all and end all!
If we can help answer any questions you might have, do give us a buzz.