Sole trader's loss in the first year of trading: early trade losses relief (ITA 2007 ss.72-73)

Early trade losses relief under s.72 ITA 2007 is available where an individual makes a trading loss in the tax year in which the trade is first carried on, or in any of the next three tax years. Marisol's loss arises in 2026/27, the first tax year of her trade, so she qualifies. The claim deducts the loss in calculating her net income for the three tax years before the loss-making year (s.72(2)): 2023/24, 2024/25 and 2025/26. Section 73 sets the order: the loss is deducted first from the earliest of those three years, then the next, then the latest. Her £30,000 loss is therefore set against her 2023/24 employment income first, and because that income exceeds the loss, it is fully used in that year. The claim must be made by the first anniversary of the normal self-assessment filing date for 2026/27 (s.72(3)).

Why A is wrong: Relief against general income under s.64 covers only the loss-making year and the previous tax year, not three years back.

Why B is wrong: Carry-forward relief under s.83 is set only against later profits of the same trade, and it cannot reach 2023/24.

Why D is wrong: Section 73 requires the loss to be set against the earliest of the three years first, not the latest.

Why E is wrong: Terminal loss relief applies when a trade ceases; ending her employment is not the cessation of a trade.