Test your understanding: answer

(1). Byron’s taxable trading profits for the tax year 2025/26 will be the profit arising in the tax year, ie the profit of the 11-month period from 6 April 2025 until 28 February 2026 (the date of cessation).

Accordingly, the figure will be £45,650 (11/14 x £58,100).

Byron’s remaining untaxed amount of transition profit of £14,900 (£28,400 – £13,500) will be subject to income tax in 2025/26, the final tax year of trading.

(2). The trading loss of the final tax year can be offset against the general income and chargeable gains of the final tax year and/or the previous tax year.

The loss of the final 12 months of trading, known as the terminal loss, can be offset against the taxable trading profits (note, not general income) of the final tax year of trading and the three preceding tax years, later years first.