Claiming tax relief on a trading loss

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Q. I am a sole trader and I have been in business for a number of years.  I made a trading loss of €35,000 in my trading year to June 2010.   How can I claim tax relief on this loss?

A.  You have a couple of options.  Firstly, you may claim tax relief for the trading loss by way of set off against your income from all sources for 2010. This would have the effect of reducing your total income for 2010 and your income tax liability will be recalculated by reference to a revised total income resulting from the deduction of the tax loss.  If there is an overpayment of tax, you will be entitled to a repayment.   Once the claim is made the full loss must be deducted from your income even if this results in complete loss of personal tax credits or other deductions available. 

 Therefore, you would have to consider whether it is more advantageous to claim the trading loss in 2010 or to carry it forward for tax relief in a later tax year by set off against subsequent taxable profits of the same trade or profession.   If you carry the trading loss forward it may only be offset against taxable profits from the same trade or profession.

While a claim against income for 2010 will obtain relief in an earlier tax year, this may be less beneficial if the effect of reducing your total income for 2010 is to leave some of your personal tax credits and other deductions or reliefs unused.   It may be more advantageous to carry forward the trading loss to reduce the taxable profits assessable for a later year if the result is to save tax at a higher rate in the later year.   For example, if you had other income subject to tax in 2010 at 20% and you expected your profits in 2011 or later years to be subject to tax at 41% then it would be more beneficial to carry forward the trading loss to obtain tax relief at the higher rate.

For further information contact Imelda Prendergast OSK Small Business Support

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