Income Tax Act 2007 section 70

Determining losses in previous tax years

Section 70 explains how to work out whether a trade loss (ignoring capital allowances) arose in any tax year before the current one, for the purposes of the farming and market gardening loss restriction rules in sections 67 and 68.

• Losses for earlier tax years are measured by reference to the actual tax year, not the basis period that would normally apply for that year.
• The loss is calculated from the profits or losses of the trade's periods of account (for income tax purposes) or, where a person is treated as the same as a company under section 69, from the company's accounting periods (for corporation tax purposes), or both — always excluding capital allowances.
• Where a period of account or accounting period does not coincide with a tax year, the profits or losses may be apportioned to tax years using the method set out in section 203(2) of ITTOIA 2005, reading references to basis periods as tax years and references to periods of account as including accounting periods.
• Capital allowances are excluded by ignoring both the allowances treated as trade expenses and the balancing charges treated as trade receipts under the Capital Allowances Act 2001.