A loss-making year does not remove the need for careful tax planning. How you claim the loss, when you file and whether a trade has ceased can materially affect the relief available.

Trading losses can look straightforward until you need to decide exactly where a loss should go.

For sole traders, there is an important distinction between claiming current-year relief and carrying a loss forward. For companies, the order of relief becomes more involved. And when a business stops trading, terminal loss relief deserves particular attention.

In a recent session, tax consultant James Bradley highlighted three areas accountants should check when dealing with loss-making clients.

1. A sole trader cannot simply choose how much current-year loss relief to use

For an individual carrying on a trade or profession, Section 381 TCA 1997 can provide current-year relief for a trading loss.

Revenue guidance confirms that the individual can elect to offset the loss against other income. Where the taxpayer is jointly assessed, relief can also extend to the spouse or civil partner's income.

There is an important limitation: you cannot simply select the amount that produces the most attractive tax result.

Once a Section 381 claim is made, the full available loss must be used as far as possible. Under joint assessment, you cannot elect to use the loss against one spouse's income while protecting the other's income.

That can affect the utilisation of available tax credits, so the calculation needs to be considered before making the claim.

The alternative treatment may be to carry an unused trading loss forward under Section 382. However, a carried-forward loss is more restricted. It is set against the next available profits from the same trade or profession.

The practical lesson is simple: do not treat “use it now” and “carry it forward” as interchangeable options. Consider where the relief can actually be used before completing the return.

2. Terminal loss relief can matter when a business closes or incorporates

Terminal loss relief was Bradley's main takeaway from the session because it can easily be overlooked when attention is focused on closing a business.

For an individual, a loss arising in the final 12 months of a permanently discontinued trade or profession may qualify for terminal loss relief under Section 385 TCA 1997.

Revenue guidance confirms that an otherwise unrelieved terminal loss may be carried back against profits from the same trade or profession for the three preceding years, with the most recent years considered first.

This becomes particularly relevant when a sole trader incorporates.

A trading loss belonging to the individual does not simply become a company loss because the underlying business has moved into a company. Instead, you need to consider the reliefs available to the individual when the sole trade ends.

The same principle deserves attention when a business ceases for other reasons. Establish the final 12-month trading period, calculate the available terminal loss and review the earlier profits from that same trade.

For companies, terminal loss relief also warrants a separate check when a trade permanently ceases. The transcript emphasises looking back over the previous 36 months of the same trade rather than assuming the remaining loss has no further value.

3. Company losses need an order of relief — and timely filing

Corporation tax losses require more care because several potential uses may be available.

Revenue currently states that trading losses may be offset against other trading income for the same accounting period or trading income from the immediately preceding accounting period. Unused losses may also receive value-basis relief against non-trading income, subject to the applicable rules.

Losses remaining after the available claims can generally be carried forward without a time limit. However, carried-forward losses must be used against the first available trading income from the same trade.

That final point matters where a company conducts more than one trade. A loss generated by one trade cannot simply be treated as a general pool for future profits from another trade.

The webinar also stressed the importance of filing on time.

A loss-making company should never be treated as a low-priority return simply because there is no corporation tax bill. Revenue confirms that late corporation tax returns can result in restrictions on loss relief, alongside restrictions affecting excess capital allowances and group relief.

In practice, that can change when and how effectively a loss can be used.

Do not assume separately owned companies can share their losses

Another recurring problem raised during the session concerned business owners with several companies.

Common ownership does not, by itself, mean that a loss in one standalone company can simply be offset against profits in another.

Group relief has its own qualifying conditions and claim requirements. Where those conditions are satisfied, Revenue allows qualifying group members to surrender certain current-year trading losses and other specified amounts.

The key point for the tax computation is to establish the corporate structure first. Do not assume that companies with the same shareholder automatically form a loss-relief group.

Build a loss review into every loss-making return

The most useful habit is to stop treating a loss as a single number to carry into a tax return.

For a sole trader, ask whether current-year relief or carry-forward treatment applies and understand the consequences of that choice.

Where a trade is ending, calculate the terminal period rather than assuming the final loss is stranded.

For companies, document how the loss is being used, check the same-trade requirement for amounts carried forward and make sure the return is filed on time.

Those checks can turn a loss-making year from a routine compliance exercise into an opportunity to identify relief that might otherwise be missed.

Frequently asked questions about trading losses

Can a sole trader offset a trading loss against other income?

Yes. An individual carrying on a trade or profession may be able to claim current-year loss relief under Section 381 TCA 1997. This can allow a trading loss to be offset against other income for the same year. Where joint assessment applies, relief may also extend to a spouse or civil partner's income. The precise tax position should be reviewed before making the claim because the way the loss is used can affect the overall tax calculation.

Can a sole trader choose how much of a trading loss to claim?

A taxpayer cannot generally make a Section 381 claim for only the portion of the available loss that produces the preferred tax result. Once the claim is made, the available loss must be used as far as possible under the applicable rules. This means accountants should consider the wider tax calculation, including available credits, before deciding whether current-year loss relief is appropriate.

Can a sole trader carry a trading loss forward?

Yes. An unused trading loss may be carried forward under Section 382 TCA 1997, subject to the applicable conditions. A key restriction is that a carried-forward loss is relieved against subsequent profits from the same trade or profession. It should therefore not be assumed that a loss carried forward can be offset against any future income earned by the taxpayer.

What is terminal loss relief for a sole trader?

Terminal loss relief may be available when an individual permanently discontinues a trade or profession. Broadly, an otherwise unrelieved loss arising in the final 12 months may be carried back against profits from the same trade or profession for the three preceding years. The most recent periods are considered first. The calculation and qualifying conditions should be checked for the individual circumstances.

Can terminal loss relief apply when a sole trader incorporates?

Potentially. Incorporating a sole trade can involve the individual permanently discontinuing that trade, making terminal loss relief an important consideration. A trading loss belonging to the individual does not simply transfer to the new company. Accountants should therefore examine the individual's available loss reliefs when the sole trade ends rather than assuming the company can use those losses.

What happens to a company's trading losses?

A company's trading losses can potentially be relieved in several ways, depending on the circumstances. These can include relief against relevant income for the same accounting period, relief involving the immediately preceding accounting period and the carry-forward of unused losses. Different conditions apply to each route, so the order and basis on which relief is claimed should be considered as part of the corporation tax computation.

Can company trading losses be carried forward indefinitely?

The webinar explains that remaining company trading losses can generally be carried forward without a time limit, subject to the applicable rules. An important restriction is that carried-forward losses are used against subsequent trading income from the same trade. Where a company conducts different activities, accountants should therefore establish which trade generated the loss rather than treating all losses as one unrestricted pool.

Can one company use the trading losses of another company owned by the same person?

Common ownership alone does not mean a loss can simply be transferred between companies. Group relief has separate qualifying conditions and claim requirements. Where the relevant conditions are satisfied, qualifying group companies may be able to surrender specified losses. Accountants should establish the corporate structure and confirm that the group relief conditions are met before including relief in a corporation tax computation.

Does a loss-making company still need to file its corporation tax return on time?

Yes. A company should not treat its corporation tax return as lower priority simply because it has made a loss and expects no corporation tax payment. Late filing can restrict the amount of certain reliefs available, including loss relief. Filing deadlines therefore remain important for loss-making companies, particularly where the business expects to use the loss against other or future taxable profits.

What should accountants check when a client makes a trading loss?

Start by identifying who incurred the loss, the trade that generated it and whether that trade is continuing. For individuals, consider current-year relief, carry-forward treatment and terminal loss relief where relevant. For companies, consider the available loss-relief routes, same-trade restrictions, group relief where applicable and filing deadlines. The objective is to establish the available claims before automatically carrying the loss forward.

The contents of this article are meant as a guide only and are not a substitute for professional advice. The authors accept no responsibility for any action taken, or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article.