tax relief on multiple business ownership

[reverend]

Scenario: You own two business's, one makes a profit and one makes a loss - can you write off the losses of one business against the profits of another in terms of reducing the tax burden? can this be done to the extent that the business operating a loss can effectively be run for free providing the profits are big enough from the other company?

[kags]

You can claim to offset losses against your general income for the same or previous tax year, and this general income could include profits from another business. In theory then, what you suggest is possible, but HMRC will look carefully at trading losses to see whether the business is being run on a commercial basis. If not, the losses may be disallowed.
This will only apply if neither business is a limited company.

[reverend]

thanks Kags.

so if say one company was losing �3m per year, how much profit would the other business have to make in order to wipe out that loss?

[kags]

Well as I said, if they are limited companies the rules are different,but if unincorporated and run as a sole trade, the profitable business could make �3m - if the Inland Revenue allow the losses as commercial, a claim could be made to offset the losses against general income for that year. This would cancel out the taxable profits. A loss of �3m would not be accepted without some serious questions being asked.