Tx notes fa22 Final

Calculate Charles’ taxable income for each relevant tax year, assuming that the trading loss is 
used in the most beneficial way and trading losses will continue for the next few years. 
Assume the personal allowance for 2022/23 applies in all tax years. 
(c)
A cap applies that limits the amount of loss relief available against a person’s total income. The 
cap is the higher of:
‣
£50,000, or
‣
25% of person’s adjusted total income
Adjusted total income is after deducting from the total income, the gross amount of any 
personal pension contributions.
Importantly the cap does NOT apply to any trading profits within the total income figure ( this 
would be relevant to a claim made in respect of the preceding tax year).
The cap will only be tested at TX-UK within this section of relief against the total income of 
current and/or the preceding tax year. 

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Illustration 1 
Louise has always prepared accounts to 31 March in each year in respect of her trade while also 
receiving employment income of £60,000 each tax year. For the accounting year ended 31 March 
2023 she made a trading loss of £125,000 having made a trading profit of £20,000 in the year ended 
31 March 2022.
The personal allowance for 2022/23 also applied in 2021/22 .
Compute the taxable income for each of these tax years assuming that loss relief claims against total 
income are made in both tax years.
Loss relief claim in 2022/23 is capped at £50,000 as this is higher than £15,000 (25% x 60,000).
In 2021/22 the loss relief claim is made in full against the trading profit of £20,000, but the cap of 
£50,000 then applies against the remaining total income (employment income of £60,000).
The cap can here be seen in fact to be of advantage to Louise as it leaves sufficient total income in 
both years to absorb the majority of the available personal allowance.
The remaining trading loss of the year of £5,000 (125,000 – 50,000 – 70,000) will be carried forward 
to set off against the next available trading profit of the business.
(d)
Relief of trading profits against capital gains:
After a claim to o
ff
set trading losses against total income, a taxpayer can then o
ff
set any remaining 
trading loss against chargeable gains in the