Relieve trading losses against general income by each programme's rule

changelog.d/trading-loss-relief.added.md

@@ -0,0 +1 @@
+Trade loss relief against general income (ITA 2007 s.64): a trading loss (`trading_loss`) now reduces net income for the loss-making year, within the s.24A cap of the greater of £50,000 and 25% of adjusted total income (s.24A(8): total income less relieved pension contributions). Beyond non-savings income it comes off savings, then dividends, in the model's allowance order (#2106). New variables `net_income_before_trade_loss_relief`, `trade_loss_relief_against_general_income`, `trade_loss_relief_against_savings_and_dividends`, `income_tax_relief_cap`, `adjusted_total_income`, `ni_class_4_profits` and the input `ni_class_4_losses_brought_forward` (SSCBA 1992 Sch 2 para 3(4)(b)).

changelog.d/trading-loss-relief.changed.md

@@ -0,0 +1 @@
+`trading_loss` is now an uprated input read by each programme's own rule: Class 4 and Class 2 NICs deduct the relief from trading profits only (SSCBA 1992 Sch 2 para 3, s.11(3)); tax credit income deducts the claimants' losses (SI 2002/2006 reg 3(1) Step 4); UC sets a loss against the person's other trades' profits but never employed earnings (UC Regs 2013 reg 57(2)); the other means tests never offset it; market income and HBAI household income count it as negative income. `loss_relief` now holds only losses brought forward (s.83); it no longer adds the previous year's `trading_loss`, which relief against general income may already have used.

policyengine_uk/data/uprating_indices.yaml

@@ -108,6 +108,7 @@ gov.economic_assumptions.yoy_growth.obr.per_capita.gdp:
 - sublet_income
 gov.economic_assumptions.yoy_growth.obr.per_capita.mixed_income:
 - self_employment_income
+- trading_loss
 gov.economic_assumptions.yoy_growth.obr.private_pension_index:
 - private_pension_income
 gov.economic_assumptions.yoy_growth.ons.population:

policyengine_uk/parameters/gov/hmrc/income_tax/bases/taxable_self_employment_income_deductions.yaml

@@ -9,8 +9,8 @@ metadata:
   label: Deductions from self-employment income
   period: year
   reference:
-    - title: "Income Tax Act 2007, s. 64"
-      href:  https://www.legislation.gov.uk/ukpga/2007/3/section/64
+    - title: "Income Tax Act 2007, s. 83"
+      href:  https://www.legislation.gov.uk/ukpga/2007/3/section/83
     - title: "Capital Allowances Act 2001, s. 1"
       href:  https://www.legislation.gov.uk/ukpga/2001/2/section/1
     - title: "Income Tax (Trading and Other Income) Act 2005, s. 783A"

policyengine_uk/parameters/gov/hmrc/income_tax/reliefs/cap/README.md

@@ -0,0 +1 @@
+# Cap on certain reliefs

policyengine_uk/parameters/gov/hmrc/income_tax/reliefs/cap/amount.yaml

@@ -0,0 +1,13 @@
+description: Reliefs against general income listed in ITA 2007 s.24A, such as trade loss relief, are limited to the greater of this amount and a share of adjusted total income.
+values:
+  0000-01-01: .inf
+  2013-04-06: 50_000
+metadata:
+  label: Cap on certain income tax reliefs, fixed amount
+  period: year
+  unit: currency-GBP
+  reference:
+    - title: Income Tax Act 2007 s. 24A(3)
+      href: https://www.legislation.gov.uk/ukpga/2007/3/section/24A
+    - title: Finance Act 2013 Sch. 3 (cap introduced from 2013-14)
+      href: https://www.legislation.gov.uk/ukpga/2013/29/schedule/3

policyengine_uk/parameters/gov/hmrc/income_tax/reliefs/cap/rate.yaml

@@ -0,0 +1,14 @@
+description: Reliefs against general income listed in ITA 2007 s.24A, such as trade loss relief, are limited to the greater of a fixed amount and this share of adjusted total income.
+values:
+  # No cap before 2013-14: the fixed amount is infinite then.
+  0000-01-01: 0
+  2013-04-06: 0.25
+metadata:
+  label: Cap on certain income tax reliefs, share of adjusted total income
+  period: year
+  unit: /1
+  reference:
+    - title: Income Tax Act 2007 s. 24A(3)
+      href: https://www.legislation.gov.uk/ukpga/2007/3/section/24A
+    - title: Finance Act 2013 Sch. 3 (cap introduced from 2013-14)
+      href: https://www.legislation.gov.uk/ukpga/2013/29/schedule/3

policyengine_uk/tests/policy/baseline/gov/dwp/tax_credits/tax_credits_applicable_income_trading_loss.yaml

@@ -0,0 +1,78 @@
+# SI 2002/2006 reg 3(1) Step 4: a trading loss in the year is subtracted from
+# the income of Steps 1 to 3, so it reduces the claimants' joint income.
+
+- name: A trading loss reduces the claimant's other income
+  period: 2024
+  absolute_error_margin: 0
+  input:
+    people:
+      claimant:
+        age: 40
+        employment_income: 20_000
+        trading_loss: 5_000
+    benunits:
+      benunit:
+        members: [claimant]
+    households:
+      household:
+        members: [claimant]
+  output:
+    tax_credits_applicable_income: 15_000
+
+- name: One partner's loss reduces the couple's joint income
+  period: 2024
+  absolute_error_margin: 0
+  input:
+    people:
+      claimant:
+        age: 40
+        employment_income: 20_000
+      partner:
+        age: 38
+        trading_loss: 8_000
+    benunits:
+      benunit:
+        members: [claimant, partner]
+    households:
+      household:
+        members: [claimant, partner]
+  output:
+    tax_credits_applicable_income: 12_000
+
+- name: Income does not go below zero
+  period: 2024
+  absolute_error_margin: 0
+  input:
+    people:
+      claimant:
+        age: 40
+        employment_income: 3_000
+        trading_loss: 9_000
+    benunits:
+      benunit:
+        members: [claimant]
+    households:
+      household:
+        members: [claimant]
+  output:
+    tax_credits_applicable_income: 0
+
+- name: A child's trading loss does not reduce the claimants' income
+  period: 2024
+  absolute_error_margin: 0
+  input:
+    people:
+      claimant:
+        age: 40
+        employment_income: 20_000
+      child:
+        age: 15
+        trading_loss: 5_000
+    benunits:
+      benunit:
+        members: [claimant, child]
+    households:
+      household:
+        members: [claimant, child]
+  output:
+    tax_credits_applicable_income: 20_000

policyengine_uk/tests/policy/baseline/gov/dwp/universal_credit/uc_trading_loss.yaml

@@ -0,0 +1,72 @@
+# UC Regs 2013 reg 57(2): Steps 1-2 add the profit or loss of each trade and
+# Step 3 makes a negative total nil, so one trade's loss reduces another
+# trade's profits but never employed earnings.
+
+- name: A loss in one trade reduces another trade's profits for UC
+  period: 2026
+  absolute_error_margin: 0
+  input:
+    age: 40
+    self_employment_income: 30_000
+    trading_loss: 10_000
+    uc_is_in_startup_period: true
+  output:
+    uc_mif_capped_earned_income: 20_000
+
+- name: A loss never reduces employed earnings for UC
+  period: 2026
+  absolute_error_margin: 0
+  input:
+    age: 40
+    employment_income: 20_000
+    trading_loss: 10_000
+  output:
+    uc_mif_capped_earned_income: 20_000
+
+- name: Self-employed earnings for UC are never below nil
+  period: 2026
+  absolute_error_margin: 0
+  input:
+    age: 40
+    employment_income: 20_000
+    self_employment_income: 5_000
+    trading_loss: 10_000
+    uc_is_in_startup_period: true
+  output:
+    uc_mif_capped_earned_income: 20_000
+
+- name: The benefit cap earnings test nets trades too (reg 82 with reg 57(2))
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    people:
+      parent:
+        age: 40
+        self_employment_income: 12_000
+        trading_loss: 5_000
+        uc_is_in_startup_period: true
+        income_tax: 0
+        national_insurance: 0
+      child_1:
+        age: 1
+      child_2:
+        age: 4
+      child_3:
+        age: 7
+      child_4:
+        age: 10
+    benunits:
+      benunit:
+        members: [parent, child_1, child_2, child_3, child_4]
+    households:
+      household:
+        members: [parent, child_1, child_2, child_3, child_4]
+        region: LONDON
+        rent: 24_000
+        tenure_type: RENT_PRIVATELY
+  output:
+    uc_trading_losses_set_against_profits: [5_000, 0, 0, 0, 0]
+    # £7,000 of earnings, below the reg 82 threshold, so the cap applies,
+    # exactly as for £7,000 of profits and no loss.
+    is_benefit_cap_exempt_earnings: false
+    universal_credit: 21_124

policyengine_uk/tests/policy/baseline/gov/hmrc/income_tax/reliefs/loss_relief.yaml

@@ -1,80 +1,39 @@
-- name: No trading losses
-  period: 2024
-  input:
-    trading_loss:
-      2023: 0
-      2024: 0
-  output:
-    loss_relief: 0
-
-- name: Current year trading loss only
-  period: 2024
-  input:
-    trading_loss:
-      2023: 0
-      2024: 5000
-  output:
-    loss_relief: 5000
-
-- name: Previous year trading loss only
-  period: 2024
-  input:
-    trading_loss:
-      2023: 3000
-      2024: 0
-  output:
-    loss_relief: 3000
-
-- name: Trading losses in both years
-  period: 2024
-  input:
-    trading_loss:
-      2023: 2500
-      2024: 3500
-  output:
-    loss_relief: 6000
-
-- name: High trading losses
-  period: 2024
-  input:
-    trading_loss:
-      2023: 50000
-      2024: 75000
-  output:
-    loss_relief: 125000
+# loss_relief holds trade losses brought forward from earlier years (ITA 2007
+# s.83). A loss made in the year itself is trading_loss, relieved against
+# general income instead (see trade_loss_relief_against_general_income.yaml).
 
-- name: Very low positive trading losses
+- name: Losses brought forward come off the trade's profits
   period: 2024
+  absolute_error_margin: 0
   input:
-    trading_loss:
-      2023: 1
-      2024: 1
+    self_employment_income: 10_000
+    loss_relief: 4_000
+    trading_allowance_deduction: 0
   output:
-    loss_relief: 2
+    taxable_self_employment_income: 6_000
 
-- name: Uneven trading losses
+- name: Losses brought forward never reduce other income
   period: 2024
+  absolute_error_margin: 0
   input:
-    trading_loss:
-      2023: 1234.56
-      2024: 5678.90
+    self_employment_income: 1_000
+    employment_income: 20_000
+    loss_relief: 5_000
+    trading_allowance_deduction: 0
   output:
-    loss_relief: 6913.46
+    taxable_self_employment_income: 0
+    taxable_employment_income: 20_000
+    adjusted_net_income: 20_000
 
-- name: Large previous year loss, small current year loss
+- name: Last year's trading loss is not brought forward automatically
   period: 2024
+  absolute_error_margin: 0
   input:
+    self_employment_income: 10_000
+    trading_allowance_deduction: 0
     trading_loss:
-      2023: 100000
-      2024: 1000
-  output:
-    loss_relief: 101000
-
-- name: Small previous year loss, large current year loss
-  period: 2024
-  input:
-    trading_loss:
-      2023: 1000
-      2024: 100000
+      2023: 5_000
+      2024: 0
   output:
-    loss_relief: 101000
+    loss_relief: 0
+    taxable_self_employment_income: 10_000