UK Carry loss over from previous year(s)to this tax year?

[Tungsten]

If a self-employed person made a loss in the previous tax year(s), can they offset this loss against the current tax year?

Many thanks

 

[Becky]

Yes

S83 Income Tax Act 2007 (ITA 2007)
Where a person (individual, partner or trustee) makes a loss in a trade (including a profession or vocation) and relief for that loss has not been given under another taxation provision the loss can be carried forward under S83, ITA 2007. Such a loss can only be set off against profits arising from the same trade.

Where the loss exceeds the profit (or there is no profit) the remaining loss (or the loss) can be set off against interest or dividends (including any tax credits) which would be regarded as trading receipts if they were not taxed under other provisions (S85 ITA 2007). See BIM40800 onwards for circumstances in which interest and dividends may be treated as trading receipts.

Such losses must be set off against the first year in which a profit arises and any balance must then be set off in the next tax year in which a profit arises.

The carry-forward is allowable provided the ownership and identity of the business during the tax years for which the allowance is claimed remain the same as during the period in which the loss was made (see Batty v Baron Schroder [1939] 23TC1, United Steel Companies Ltd v Cullington (No.2) [1940] 23TC91, Goff v Osborne & Co (Sheffield) Ltd [1953] 34TC441 and Rolls-Royce Motors Ltd v Bamford [1976] 51TC319).

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim85060

 

[Tungsten]

I think I need an accountant .... what should I pay for a one hour chat?

I am also trying to figure if I should change to Ltd Company and thus reduce what I pay in Tax.

I appreciate your reply Becky - Thanks

 

[Becky]

I think that's a good idea. Fees vary massively from place to place, so a good idea would be to get in touch with some and ask for a quote. You should find that people are happy to meet initially for free to discuss your needs - obviously with the view of getting work from you - but it would certainly be useful for someone in your situation.

 

[Tungsten]

Thanks ... so far I think I am 'up a creek' with no paddle

 

[cooper1210]

Losses can be carried forward to be relieved against income from the same trade. It can't be used to relieve PAYE income.

These will help: http://www.litrg.org.uk/tax-guides/...ses-and-capital-allowance/what-if-i-make-loss
http://www.accountingweb.co.uk/any-answers/carry-forward-losses-for-sole-trader

 

[Tungsten]

Thanks for the note .. I am not PAYE and my Trade is the same, as I only have one trade. I also receive WTC, and I have not told them I expect to exceed the upper threshold, so will be paying them back. I am just trying to work how to reduce my tax as my income last year was zero - so not good.

 

[cooper1210]

If it's the opening years of trade, you can also carry this back to three years preceding

 

[Mike Wilford]

Certainly. In the long term a good accountant will save you more in tax then you are paying them

 

[cooper1210]

Also, if the loss has been used to offset against PAYE tax, you can also use the same loss against future trade income for Class 4 NIC as well. Not many people are aware, but there's actually two losses

 

[Tungsten]

A little update, I stopped being self employed and created a company ...So my new LTD company will gain my revenue which I have not invoiced yet.

I updated WTC of the change ... but as I take money from the company I'll update them.

Oh what fun this is ...

 

[yoouika]

I am also trying to figure if I should change to Ltd Company and thus reduce what I pay in Tax.