Carry-forward of trading losses: generous…

…but not quite that generous.

When a trade (or any other kind of business) is transferred to a company wholly or mainly for shares, any tax losses of the business which remain unused at that time are retained by the transferor and can be deducted from any income the transferor receives from the company.  It doesn’t matter whether the income is in the form of remuneration or dividend (or even loan interest): nor does it matter that the income may have no connection whatsoever with the business transferred.  All that really matters is that the company continues to carry on the transferred business (however minimal the extent) and that the transferor continues to hold the shares.  It’s a remarkably generous relief and one which can, in the right circumstances, rescue something from the wreckage of a failed business venture where all else fails.

But there are limits, as the appellant found in Graham Davis v HMRC [2022] UKFTT 274 (TC).

Mr Davis’s business, which he conducted as a sole trade between 2002 and 2007, was financing the car trading activities of one Mr Dickinson.  Mr Davis supplied the money for Mr Dickinson to buy cars: on their sale he was paid back the amount advanced plus a share of profit.

Some years after the sole trade had ceased, Mr Davis incurred some losses (Mr Dickinson failed to pay up what he owed) and he claimed relief for them against income he received from his company in 2016/17 and 2017/18.

The first problem with the claim was that the company had started operation in 2005.  It never had any dealings with Mr Dickinson – who was Mr Davis’s only customer and with whom Mr Davis continued to trade personally until 2007.  Difficult, then, to see that the trade had been transferred to the company.

The second problem was that even if the trade had been transferred, the losses didn’t exist at the date of transfer: they were ‘post-cessation losses’ to which the rules don’t apply.

Third, even if the trade had been transferred, it hadn’t been transferred in return for shares in the company: they had been subscribed for in cash.  That alone scuppered the claim.

Altogether, the case was hopeless.  Nonetheless, it is a useful reminder of the generosity (in some circumstances) of the rules on carry-forward of trading losses: but generosity has its limits.

For more information, please get in touch with your usual BKL contact or use our enquiry form.



Sam Inkersole

In 2022, Sam won the Taxation’s Rising Star award at the Taxation Awards in and was named in the Accountancy Age 35 Under 35.

Jon Wedge

While Jon’s client work focuses on the financial services sector, he also oversees the firm’s assurance service, as well as supporting the trainees following in his footsteps.


Elana joined us in 2017 as an ACA trainee, after graduating from Durham University where she had studied languages. She is now a manager in our assurance team.


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