New Business Means Loss of Tax Relief

When trading losses (as calculated for tax purposes) are made, there are several ways these can be used, but in all cases, if no other relief is given, the losses are carried forward to be deducted from the first available trading profits of the same trade or profession.

Recently, the First-tier Tribunal (FTT) had to consider an unusual question – can a tax loss be carried forward to a second business that is carrying out essentially the same activity as the first?

The argument related to a dispensing optician who had carried on business as a franchisee of the well-known Dollond and Aitchison brand for several years and who ended his franchise agreement in 2009. He then carried on working as a locum optician in his own name.

After his franchise ceased, accounts and tax computations were prepared to cessation, and these showed tax losses of some £15,000.

The optician claimed the losses from the franchise as a deduction from his trading profits as a locum, his argument being that he was acting as a self-employed dispensing optician in both businesses.

Although a number of arguments applied, the decision turned on the fact that the franchise business clearly ‘was the carrying on of a trade and not the practice of a profession’, whereas after he commenced work as a locum, the optician was practising a profession and had a different client base.

The FTT ruled that the losses were not available to be set against the income from the new business.

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