From the course: Understanding UK Business Finance and Tax

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Tax breaks for businesses that make losses

Tax breaks for businesses that make losses

From the course: Understanding UK Business Finance and Tax

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Tax breaks for businesses that make losses

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If businesses are taxed on profits, what happens when they make a loss? The answer is there is no tax to pay and they can carry back the losses or carry forward the losses. This means they could get a tax refund for tax paid in the past, or pay less tax in future years. In this video, I'll be explaining how loss relief works for sole traders, partnerships, and companies. For sole trader and partnership businesses, the number of years that a loss can be carried back depends on the circumstances. It's normally a year, but could be 3 or 4 years depending on whether the business is in its first few years of trading or in its final year of trading. Let's take a look at an example. Cristiano starts our national football coaching business, which runs across the U.K. He makes a profit of £100,000 in Year 1 £100,000 in Year 2, and £100,000 in Year 3. However, let's say in Year 4 there was a global pandemic and he was no longer able to run any training sessions. However, he was obliged to pay…

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