If you’re an individual in business, as either a sole trader or in partnership, and your business makes a loss, you may be able to offset the loss against your other earnings such as salary and wages.
If you have excepted income, you usually must cut any other tax losses and non-commercial losses by that amount.
If you have other tax losses (excluding non-commercial losses) these must be reduced by any net exempt income you received during the year first. Any net exempt incomes remain after this is then used to reduce your non-commercial loss balance.
If you do not have other tax losses then your exempt income is used to reduce your non-commercial losses. The reduced amount is then deferred to a future income year if it cannot be totally balance against other income.
In every future year, the balance of the deferred loss is further offset by that year’s exempt income, where this exempt income has not already been applied alongside other ‘normal’ tax losses