Business owners urged to maximise tax relief on losses

It is no longer news that from April 2025, the UK government is increasing employers’ National Insurance contributions (NICs) by 1.2% to 15%. The threshold at which employers start to pay NICs will also be reduced from £9,100 per year to £5,000 per year. This may not sound material, but for businesses employing full-time employees on minimum wage, their NICs bill is expected to increase by an eye watering 60% as calculated by the .

These increased tax costs, in addition to a continually uncertain and rapidly changing global economy, may inevitably result in an increased number of UK businesses being forced to permanently close their doors as they struggle to keep up with changes and cover their rising costs. 

Whilst a business closure is of course a dark day for any business owner and entrepreneur, it may be possible to partially soften the blow by ensuring owners maximise tax relief on any losses they sustain as a result. Tax loss reliefs generally have very stringent requirements and, even though entrepreneurs and investors may hope for the best when investing in a business, they may wish to understand what loss relief they could be entitled to, as the worst-case scenario, at the time of investment.   

For example, in the recent tax case of , the taxpayer claimed £2,200,000 of losses in respect of a loan to his trading company, which was capitalised shortly before the business was liquidated, on the basis that the loan had become irrecoverable. HMRC rejected the loss claim, on the basis that the loan no longer existed as it had been converted into shares. Following an appeal by the taxpayer, the Upper Tribunal ruled in favour of HMRC, rejecting Mr Bunting’s appeal. 

There are some instances where losses on qualifying shareholdings can be offset against an individual’s income, resulting in tax relief of up to 45% or 48% (for UK additional rate and Scottish top rate taxpayers, respectively). Such relief was not available for Mr Bunting but may be available where an individual has subscribed for shares in a qualifying trading business which has subsequently failed, provided wider conditions are met.

It is therefore important that even in difficult times, business owners, entrepreneurs and investors are speaking to their tax advisors to test what relief may be available to help maximise tax relief from losses at a time when they may need it the most. They should also be careful when structuring any future investments to protect their position in the event that things do not go as planned, particularly as businesses continue to navigate such an uncertain economic landscape.