A sole trader cannot offset a current year loss against prior year profits. However, assuming the business is run on a commercial basis you can offset your losses in several ways:
- Against other income including employment income you earned in the same year
- Against any investment income you earned in the same year
- Against any trading or employment income earned by your spouse in the same year
- Against any investment income earned by your spouse in the same year
- Carry forward against future profits from the same trade
If you want to set the loss against other income then you must make a claim to Revenue (known as a Section 381 claim). Revenue will not offset the loss automatically. If you do not make a claim or you have excess losses over other income the balance is automatically carried forward and used against profits from the same trade.
Offset of trading losses against other income can often be very beneficial as it can result in a refund from Revenue of taxes you or our spouse paid through their employment income. However, it is not always beneficial to claim this offset so you should carefully work out the figures before making any decision.
In your case you can make an election to offset your business loss against your employment income from your part time job. However, if you have not paid much tax on your part time job this may not be the most beneficial use of your losses and you may be better off carrying the loss forward to offset against profits in future years.
If you are planning on ceasing your company and this is the last trading period, terminal loss relief means that you can set the loss against the business trade for the last three years.
Utilising losses is a complex area. I would encourage you to approach a professional for advice, such as your local TaxAssist Accountant. Please contact us if you would be like to put in touch with your local office to discuss this further.
Disclaimer: Advice shared in this blog is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this forum, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.