Self Employed Losses: Can I Claim Tax Relief for a Business Loss?

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Running a self-employed business does not always mean making a profit. Some years can be difficult, particularly when you are starting a new business, buying equipment, investing in advertising or simply dealing with a period when your sales are lower than expected. The good news is that a genuine trading loss does not necessarily mean the money is simply lost for tax purposes. Depending on your circumstances, you may be able to use the loss to reduce your tax bill, either against other income, against profits from the same business in future years, or in some circumstances against income from earlier tax years.

Understanding the rules can be important because the way you use a loss can make a significant difference to how much tax you ultimately pay.

What is a self-employed business loss?

A self-employed business loss happens when your allowable business expenses are greater than your business income for the tax year. For example, if your business receives £30,000 of sales but you have £38,000 of allowable expenses, your trading loss would be £8,000.

Not every payment you make for your business is automatically an allowable expense, so you should make sure the figures used to calculate the loss are based on expenses that HMRC allows. If you are unsure about which costs can be claimed, our guide to What self-employed expenses can I claim? explains the rules in more detail.

A loss is not the same thing as simply having a low level of income. If you receive £30,000 and have £20,000 of allowable expenses, you have made a £10,000 profit, not a loss.

Do you have to declare losses to HMRC?

Yes, if you have made a genuine trading loss and want to use that loss for tax purposes, you normally need to declare it through your Self Assessment tax return and make the appropriate claim.

This is important because HMRC does not automatically give you every possible form of loss relief simply because your accounts show a loss. You need to use the relevant boxes on your tax return or, depending on the type of claim, make a separate claim to HMRC.

Even if you have no tax to pay because your business made a loss, it can still be worth completing your tax return correctly because the loss may have value in a later tax year.

For example, imagine that you started trading in 2025/26 and made a £10,000 loss. You might have no tax to pay on the business itself, but if you are entitled to carry that loss forward, it could potentially reduce the taxable profit from the same business in a future year.

Can I claim tax relief for a self-employed loss?

Yes, potentially. The tax rules allow trading losses to be used in several different ways, although the option available to you depends on the circumstances in which the loss was made.

A trading loss may potentially be used against your other income in the same tax year or an earlier tax year, carried forward against future profits from the same trade, or in certain circumstances used under the special rules for losses made during the early years of a trade.

HMRC’s current 2026 Losses Helpsheet confirms that trading losses can be used in different ways, but that restrictions and conditions apply to the different types of relief.

This is why it is important not simply to assume that the best option is always to carry the loss forward. In some situations, claiming relief against income from an earlier year could produce a tax refund sooner.

How do self-employed trading losses carried forward work?

One of the most common ways of dealing with a trading loss is to carry it forward.

If you have a loss from your self-employed trade and do not use it under another loss relief claim, the loss can generally be carried forward and set against future profits from the same trade. HMRC’s guidance confirms that a carried-forward trade loss is set against profits arising from the same trade.

For example, suppose you make a £7,000 loss in 2025/26.

In 2026/27, your business makes a profit of £5,000. The £7,000 loss could potentially be used against that £5,000 profit, leaving no taxable trading profit for that year and £2,000 of unused loss remaining.

If the business then makes a £6,000 profit in 2027/28, the remaining £2,000 loss could potentially be used against that profit, leaving £4,000 taxable profit.

The important point is that carried-forward losses are generally linked to the same trade. You cannot simply use a loss from one unrelated business against any income you happen to receive in the future.

Can I claim tax losses from previous years?

Yes, in certain circumstances, but the answer depends on what type of loss you have and how you want to use it.

For example, a trading loss may be carried forward against future profits from the same trade. There are also circumstances where a loss can be carried back and used against income from an earlier tax year.

For the 2025/26 tax year, HMRC’s guidance allows certain trading losses to be carried back against income or capital gains for 2024/25. There are also special early-years rules for qualifying losses where a trade started after 5 April 2022.

This means that if your business made a loss this year but you paid tax in an earlier year, it may be worth checking whether you can claim some of that tax back rather than automatically carrying the loss forward.

Can I carry a self-employed loss back to a previous year?

In some circumstances, yes.

The general trading loss rules can allow a loss to be set against your income of the tax year in which the loss occurred or the previous tax year, subject to the relevant conditions and restrictions.

There are also special rules for losses made during the first four tax years of a new trade. These early trade loss rules can potentially allow qualifying losses to be carried back against income from the previous three tax years, starting with the earliest year.

These rules can be particularly valuable for someone who has recently become self-employed and has made a significant loss while establishing the business.

However, there are important conditions and restrictions, so it is worth calculating the different options before deciding how to use the loss.

How far back can I claim a self-employed trading loss?

There is no single answer because the period depends on the type of loss relief being claimed.

For a normal trading loss, you may be able to claim relief against income from the tax year in which the loss occurred or the previous tax year. Special rules can apply to losses made during the early years of a trade, potentially allowing qualifying losses to be carried back further.

The important distinction is between using a business loss and HMRC going back to investigate unpaid tax. These are completely different rules.

If you are asking how far HMRC can go back when investigating unpaid tax, the normal time limit for an income tax assessment is generally four years after the end of the relevant tax year. This can increase to six years where the loss of tax was caused by careless behaviour and, in certain circumstances, to 20 years where the loss of tax was brought about deliberately or where there has been a failure to notify a tax liability.

We have also covered this separately in How far back does HMRC go for unpaid tax? because the rules are often misunderstood.

Can I use a business loss against my salary or other income?

Potentially, yes.

Under the relevant trading loss rules, a self-employed person may in certain circumstances claim relief against general income for the year of the loss or the previous year.

This can be useful if, for example, you are employed as well as running a small business. Imagine that you earn £35,000 from employment but your new self-employed business makes a £10,000 allowable trading loss. Depending on the circumstances and the type of loss claim available, you may be able to use the loss against your other taxable income and reduce the tax you have paid or owe.

There are restrictions on the amount of trading loss relief that can be claimed against general income. For example, the amount of certain income tax reliefs is generally limited to the greater of £50,000 or 25% of adjusted total income.

Because the rules can become complicated where you have employment income, property income, investment income or several businesses, it is important to calculate the available relief rather than simply deducting the loss from whatever income you choose.

Can I carry forward a loss indefinitely?

A trading loss carried forward can generally continue to be used against future profits of the same trade until it has been fully used, subject to the relevant rules.

For example, if you make a £20,000 loss and your business only makes £2,000 profit the following year, you may still have £18,000 of loss available to use against future profits.

However, you should not assume that a loss will always remain available regardless of what happens to your business. Changes to the nature of the trade, stopping the business, incorporating the business or starting a different trade can affect how losses can be used.

This is one reason why it is particularly important to keep proper records of losses from previous tax years.

What happens if my business keeps making losses?

Making a loss for one year does not necessarily mean there is a problem. New businesses often have significant costs at the beginning and may take time to become profitable.

However, if a business consistently makes losses, you should look carefully at whether it is genuinely being run as a commercial trade with a reasonable expectation of making profits.

This is particularly important because HMRC can distinguish between a genuine trading business and an activity that is effectively a hobby. Simply describing something as self-employment does not automatically mean that every loss will qualify for tax relief.

If you have several years of losses, it is therefore sensible to review the commercial reasons for the losses, the way the business is operated and the evidence showing that you are genuinely carrying on a trade.

Can I claim a loss if I have just started my business?

Yes, potentially, and new businesses can have some particularly useful loss relief options.

The early trade loss rules are designed to provide relief where a new trade makes losses during its first few years. Qualifying losses can potentially be carried back against income from earlier tax years, which can result in a repayment of tax that you have already paid.

For someone leaving employment to start a business, this can be especially important because the person may have paid PAYE tax on employment income before starting the new business.

For example, if you leave employment after earning a salary for several years and then spend your first year building a new business, a trading loss may potentially provide tax relief against earlier income if the relevant conditions are met.

What if I stop my self-employed business?

If you stop trading, special rules can apply to the final losses of the business.

This is known as terminal loss relief and can allow certain losses from the final period of trading to be carried back against profits from the same trade from earlier tax years.

This can be useful when a business has made profits in previous years but then suffers a loss before it closes. Rather than simply leaving the final loss unused, it may be possible to use it to obtain relief against earlier profits.

The calculation of a terminal loss can be more complicated than an ordinary trading loss, so it is worth checking the figures carefully when a business is being closed.

What records should I keep when my business makes a loss?

You should keep the same type of business records that you would normally keep when making a profit, including sales invoices, receipts, bank statements, purchase invoices and records supporting your business expenses.

You should also keep a clear record of how the loss was calculated and how much of the loss has already been used.

This becomes particularly important when a loss is carried forward for several years because you need to know exactly how much remains available.

Good bookkeeping can make this much easier and can also help you identify whether a loss is genuine or whether some expenses have been incorrectly included.

Should I carry the loss forward or claim it against previous income?

There is no answer that is best for every business.

Carrying a loss forward can be attractive if you expect your business to become profitable in the near future because the loss can reduce the tax payable on those future profits.

On the other hand, carrying the loss back may produce a tax repayment sooner, which can be valuable if you need cash to support your business.

For example, if you made £10,000 of taxable profit last year and paid tax on it, but your business makes a £10,000 qualifying loss this year, a carry-back claim could potentially result in some of the tax from the earlier year being repaid.

The best choice therefore depends on your previous income, your current tax position, expected future profits and the type of loss you have made.

Can an accountant help me claim self-employed losses?

Yes. An accountant can calculate the trading loss, check which expenses are allowable, look at the different loss relief options and make sure the relevant figures are reported correctly to HMRC.

This can be particularly useful where you have both employment and self-employed income, have recently started trading, have several years of losses, are closing your business or are considering whether to carry a loss backwards or forwards.

The important thing is not simply to calculate the loss but to consider how that loss can be used most effectively.

What is the main thing to remember about self-employed losses?

A business loss is not necessarily money lost forever. In many cases, a genuine trading loss can provide valuable tax relief, either by reducing other taxable income, reducing profits from the same trade in future years or, where the conditions are met, producing a repayment of tax paid in an earlier year.

The rules are not always straightforward, however, and choosing the wrong type of claim can mean missing out on tax relief or delaying a repayment unnecessarily.

If you are self-employed and have made a loss, make sure you declare it correctly and consider all of the available options before deciding what to do with it. A loss that is properly recorded today could reduce your tax bill in a future year.

If you are unsure whether your figures represent a genuine trading loss, our guide to What are business losses? provides a useful starting point before looking at the more detailed tax relief rules.

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