Offsetting a loss against future profits

QUESTION: Having started a business as a self-employed driving instructor and made a loss in the first year, can this loss be offset against future profits?

ANSWER: You might be able to offset the loss on the driving instructor business against income from the same year. Alternatively you can carry the loss forward and offset it against future profits of the driving instructor business. In calculating the loss you can include capital allowance on the business’ assets such as the motor cars used to instruct pupils.

However you also have a further option under the Income & Corporation Taxes Act (ICTA88/S381). This is where an individual (either as sole proprietor or as partner but not a trustee) sustains a loss in a trade, profession or vocation in the year of assessment in which the individual first carries on that trade, or in any of the three succeeding years of assessment.

The individual may claim that the loss be set as far as possible against his or her total income for the year of assessment ending three years before the end of the year of loss, with any balance set against the total income of the next two succeeding years of assessment, the earlier year being taken in priority to the later. Effectively section 381 allows trading losses to be carried back and set off against the income / profits of the previous three years.

There is guidance on the HMRC website at

Maximising the tax situation for business losses can be complicated and needs to be considered in light of the individual’s total circumstances. You would be well advised to consult a Chartered Accountant. If you do not already have contact with one you can find nearby licensed firms on the ICAEW website at

Related Topics

Profit and Loss