making a loss

peri_2

dont know if anyone will be able to help me, but last year was my first year filling out a tax return form. this went well, but i made a loss (i work full time and run a little part time therapy business) and this business made a loss.

because of this i got some tax back (nice!)

but this year i KNOW i will be making a bigger loss (ie brought more equipment etc)- will the IR wonder why im still carrying on? next year should make a gain as i would of brought all the equipement i need to run it this year.

but will they wonder whats going on? as if i make another loss, i will get another tax back money.

will the IR find this odd?

CIS

As long as your accounts are okay they shouldn't worry. Your accounts will show a large increase in your capital allowances, that should be enough to show them that the money went on equipment.

Its also common for business to make a loss on the first few years.`(some business are nearly always run at a loss)

ctm_2

peri wrote:

will the IR find this odd?

No, they won't. Loads of people do this.

Remember though that you could be asked to prove all your expenses, by way of producing receipts etc, so make sure you only claim for what you can prove.

Also, have you thought about carrying the loss forward to a future year, rather than ofsetting it against this years income? Could be beneficial if currently you are a basic rate taxpayer, and your extra self employed income takes you into the higher rate when you make a profit, carrying the loss forward till then could be more beneficial.

Murphy_The_Cat

peri don't worry about it.

as long as you have the paperwork to back up your accountd (you do have the paperwork don't you ?) you'll have no problems.


MTC

reddevilled

As long a you make a profit within 6 years HMRC should not have a problem. If you make losses 6 years running they may see it as a non profitable business and not allow the losses, but this doesn't seem to be an issue for you.

Cook_County

I assume that

1) You elected to carry the loss back in the first year

2) You chose an accounting date that gave you the best use of your losses

3) You can prove if challenged that you are in business with a view to making a profit. If so you could make losses for a long time to come...

ctm_2

Cook_County wrote:

I assume that

1) You elected to carry the loss back in the first year

Sounds to me like the first years losses were offset against other income.

Broke_Bloke_2

Don't mean to hi-jack this thread, but it has some relevance to me too....
Higher rate taxpayer in full-time job.
Loss projected at £2000 for first year for self-employed part-time job- for the sake of argument say that all of it is on capital expenditure.
So how much can I expect to off-set against tax?
40% of the 40% allowance?
MTIA.

roger_c

Broke_Bloke wrote:

Don't mean to hi-jack this thread, but it has some relevance to me too....
Higher rate taxpayer in full-time job.
Loss projected at £2000 for first year for self-employed part-time job- for the sake of argument say that all of it is on capital expenditure.
So how much can I expect to off-set against tax?
40% of the 40% allowance?
MTIA.

Well you will reduce your non-savings income by £2,000 so you should cut your tax bill by 40% of 2000 (£800) as long as you offset the loss against your 'other income' on your tax return.

If the money is spent on capital assets such as plant, machinary, cars etc, you claim capital allowances as they are items which you keep hold of for a number of years. You can only claim first year allowances (surprisingly in your first year) and then 25% (in normal circumstances) writing down allowance thereafter.

Broke_Bloke_2

Thanks for the reply Roger- I think I understand that ok

sarahlouise210

Loss year on year is not considered all that uncommon and as long as you have receipts to back up your return entries you will be ok. Never say that you are only doing the second income for a "hobby"..(mistake often made!) ..once you say it is a hobby you cannot claim any expenses at all !!!!