If you’re self-employed and file a Self Assessment tax return, you may wonder what happens if your business makes a loss. Can you claim a tax refund? Can you carry the loss forward to reduce future tax bills? Here’s what you need to know as a sole trader.
This guide is intended to provide general insight only — the full rules can be more complex, so it’s always best to get advice tailored to your specific circumstances.
What Is a Carried Forward Loss?
1. Carry the Loss Forward
This is the most common option. You apply the loss to future profits from the same trade. HMRC automatically carries it forward unless you opt for another method.
Example: You make a £5,000 loss in 2024/25 and a £10,000 profit in 2025/26. You can deduct the £5,000 loss, leaving only £5,000 subject to tax.
2. Carry the Loss Back
If you had taxable profits in the previous tax year, you may be able to carry the loss back and reclaim some of the tax already paid.
3. Offset Against Other Income (in Certain Circumstances)
If you’re in your first four years of trading, you can offset the loss against other income (e.g. employment or property). You might be eligible for a tax rebate.
You may also offset losses against other income in your final year of trading.
Filing with HMRC
Loss relief is handled through your Self Assessment tax return. If you’re carrying forward the loss, HMRC will track it automatically, but if you want to carry it back or use sideways relief, you’ll need to include the relevant claim on your return.
Can I Get a Tax Rebate?
Yes, but only if:
- You carry the loss back to a profitable year
- You offset against other income (in eligible cases)
Simply carrying the loss forward won’t give you an immediate refund, but it will reduce future tax bills.
Final Thoughts
Making a loss isn’t the end of the world. Used properly, it can reduce your future tax burden or even get you money back from HMRC. If you’re unsure which option applies, it’s worth getting tailored advice.
At My Finance Department, we help sole traders make sense of their tax position and ensure they’re not missing opportunities to claim back what they’re owed.
