Income Tax Act 2007 section 74E

No relief where cash basis used to calculate losses

Section 74E prevents a person who uses the cash basis from claiming sideways relief or capital gains relief for trade losses.

• If you use the cash basis for your business and make a loss in a tax year, you cannot set that loss against other income (sideways relief) or against capital gains.
• The cash basis is the simplified accounting method available to eligible small businesses under section 25A of ITTOIA 2005.
• Capital gains relief means treating a trade loss as an allowable loss for capital gains tax purposes under section 261B of TCGA 1992.
• Losses arising under the cash basis can still be carried forward against future profits of the same trade, but the wider reliefs are blocked.