Yes, but to offset losses against your employment income does assume that the small business is a sole trader and not a limited company.
In fact, individuals can claim reliefs for losses on a new business, not only against other income in the current tax year (2009-10), but also against any income in the previous three tax years. The tax liability of the earlier years is recalculated to establish the tax saving.
If the new business is a limited company, then trading losses can only be offset against any other company income such as interest or chargeable gains. Alternatively, the losses can be carried forward against the company’s future trading profits.
In calculating the loss, expenses can only be included if they are ‘wholly and exclusively incurred for the purpose of the business.’ If you have a motor vehicle, only the business mileage can be included. If you are running the business from home, you can include a charge for use of office or other facilities but you must be prepared to justify any expenses claimed to HMRC. Also, if you have brought any equipment into the business or purchased assets such as a computer you can claim a percentage of the cost against the trading income.
A chartered accountant can help you with the necessary accounts preparation and file the tax return as your agent. See: Hiring an accountant: A small business guide