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The principle is as far as I understand it that trading losses are set against future trading losses. In illustration 1 of chpt 6 there is different solution where trading loss 20,000 is set off against preceding year’s trading profit (after using 50,000 against total income). How is it possible ? Is it anything I do not understand ? How is it possible to move that loss towards past trading profit ?
When dealing with trade losses you have several options.
If you dont claim anything then the loss is automoatically set against future profits from the same trade.
Alternatively you – as a sole trader – can claim against either current or previous year as in Illustration 1.
You can – if you have claimed CY set off then extend into capital gains/losses.
If it’s the start of your business then you can claim opening years relief. If its the end of the business then Terminal loss relief.Always read the question carefully and decide which of these rules applies to your question.
Thanks for attention. I understand the relevant options but none of them seems to apply to illustration 1. I know we can set losses of against future profit of the same trade or set it against current or previous year ‘s net profit from all sources but in Illustration 1 part of the loss is set against trading profit of a previous year. It means that you can actually set off your trading losses against previous or future profits. In the book there is ONLY option to carry forward your losses to the future unless it is termination loss. It was not the case in Illustration 1. Analysing carefully Illustration 1 I am really unsure how you can apply your trading loss to the previous year’s trading profit. Can you do it as you wish or after using your limit for other income ? it is not clear. I am aware that a few Covid years have that kind of election introduced but again in Illustration 1 this is year 2023 which as far as I know do not have that election. It is all not clear.
Illustration 1 is linked with the information on the previous page about the cap on losses and the restriction.
Its not an easy set of rules to understand – so read them again and then look at the illustration. Also – have you watched the lecture on this?
I really tried hard to make it easy to understand.Loss in thr current and previous year is the applicable rules to apply.
Then the restriction needs to be thought about
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