Using losses carried forward

Hi, I have a question regarding utilising losses that have been carried forward. I'm a sole trader and about to submit my 3rd year of self employed self assessment and would like to use some of my previous years losses against this latest year's profits. What I am unsure of is the rules regarding how to use them. My first year made a loss from startup costs etc, 2nd year a small profit but below anything taxable and my latest year a profit that will be taxable above the tax free allowance. What I'm not sure about is whether I have got it right with regards to how you have to use losses your carrying forward. I had thought when I read that losses being carried forward should be used against any taxable profits, this meant anything over the tax free allowance and hence taxable however I've since read conflicting information saying it must be used against any profit even if under the taxable allowance? So that's the first question. The second depends on whether or not I have interpreted this correctly or not. I did not put down on year 2's self assessment that I wanted to use any carried forward losses against that years profits as the amount of profit was below anything taxable. Should I have used some of the previous years losses against any profit from this year regardless of it being high enough to pay tax on? If so and I have not done so, what do I do now with regards to using the rest of the losses? If I should have used some on year 2 but didn't, can I use the equivalent of whatever losses would have been available to use if I had used them? I.e 12000 in losses to carry forward from year 1. Profit of 4600 in year 2. Profit of 20000 on year 3. How should losses be carried forward in this example? Should I have knocked off 4600 from the 12k to leave 7400 of losses to carry forward to year 3 with the rest being used against year 3 profits regardless to year 2s profit being untaxable anyway? Sorry if that is long and confusing to understand. I'm just trying to figure out what I need to do to make everything right before I submit my latest self assessment at the end of this month. Thanks for any help

Hi,

The losses should be used in the first year that you make a profit even if it means you do not use the personal allowances. Based on your information, 4600 should have been used in year 2 to leave 7400 to be used in year 3, again even if that means losing some of the personal allowances.

Thank you.

Thank you very much for your reply. That has confirmed I have made a mistake. My question now is, am I still able to use the 7400 against this latest tax year if I didn't put down on last year's that I wanted to use 4600? Or would I have to try and make changes to last year's return before doing that? How would I remedy the situation if possible? Thank you very much for your time.

Hi CMPaint,

You can amend your 2020 to 2021 tax return up to 31 January 2023, to include the losses used and the sum to carry forward.  

This will allow you to use 7400 against 2021 to 2022.  

If you do not amend your return, you will need to submit an overpayment relief claim to claim the losses.

You can find more information here:

 SACM12150 - Overpayment relief: Form of claims

Thank you.

Hello, I have a quick question regarding how to use the losses when filling out the self assessment form. I am trying to amend my previous submission to use some of my losses but I'm confused by the wording on the form. The section on the form : "Loss brought forward from earlier years set-off against 2020-21 profits" Expanded information goes to explain the following: "Include the amount of any losses you sustained in this business in the tax year 6 April 2019 to 5 April 2020 and earlier years which you have not yet used, to be set-off against the 6 April 2020 to 5 April 2021 profits." Am I correct to submit the total profit of this year which would be £5650 in this box and then carry forward the remaining losses further in the form? I was just worried I was doing something wrong as a warning was attached to the adjustments section of the form. Thank you for your time

I have a similar scenario;losses over 3 previous years and a profit in the last, amounting to less than the losses brought forward. As instructed by the ‘Help’, I have entered only the profit amount in ‘losses brought forward to be offset against this year’s profit’ and carried the remainder forward to be used against future profits. The problem I have is that when the calculation is ‘checked’, a red warning is displayed for that section asking me to recheck my figures which I’ve done many times but still the red warning. I’ve tried calling HMRC to discuss but no answer after an hour of waiting. What do I do please?,time is running out!

Hi CMPaint,

Losses brought forward from earlier years set-off against 2020-21 profits means that losses from 2019-20 and earlier can be set of against a profit arising from the same trade in 2020-21.  
If your losses carried forward are greater than the profit of 2020-21, you set enough of the losses against the profit to reduce the profit to £0.00, and carry forward the remaining profits into the next tax year.  
The helpsheet HS227 should be of some help HS227 Losses (2022)

Thank you.

Hi Beatles,

It is an advisory message and you should still be able to save and continue to finish the return.

Thank you.

Hi, 22-23 year made a loss after including capital allowance - purchase of van which was £20,000. loss of about £500. can I carry forward capital allowance van purchase to 23-24 or can it only be used for 22-23 tax year? Or can i use it 23-24 but not 22-23? thanks