Ofsetting partner's losses against my earnings

babyontheway

We are a family of 3 with our son under 1 year of age. We are married. I am employed and my husband is self-employed but has yet to turn a profit in his business.

I applied for working tax credits in March, as I hadn't realised that we were entitled to them. Our son was born in April.

When I filled in the forms both to apply in the first place and again with the re-registration forms in July it said that if you were self-employed and you made a loss to put your earnings as £0 which I did.

Because I have been on statutory maternity pay this year my earnings have gone down so I called the hotline to let them know. We have also started using £120 per month of childcare.

They asked if my husband's earnings had changed and I said that he had made a loss last year and we were expecting that he would make a loss again this year so I said to leave his earnings as £0.

The woman on the phone told me that I can deduct his losses from my earnings and thus increase our payments. I was dubious because there was no option on the forms to declare an actual loss. I asked her to check and she spoke to someone else and told me that it was definitely the case that you can do this.

I told her the losses and she reduced my income accordingly. Our tax credits have increased by £300 per month, which is a massive jump. Obviously some of that is because of my being on maternity but my loss of income was about the same as my husband's declared losses.

Although this was done by the Tax Credits people, I am terrified of getting an overpayment as our finances are really tight. I feel I can't spend the extra income as it may have been given incorrectly.

Has anyone else done this? It's just strange that they don't ask for the information up front and it was only because I informing them of a change of circumstance that they told me. Given the stories we have all heard regarding overpayments, you'll forgive me for not having a great deal of faith in the Tax Credits department!

CIS

http://www.hmrc.gov.uk/manuals/tctmanual/TCTM04004.htm

A loss counts as £0 income for tax credits purposes but you can offset the loss against the next years s/employed income to reduce it (as per tax rules).

e.g

you lose £500 this year, you declare it as £0.00 income

next year you earn £5000 - you reduced it by the £500 loss from last year and declare £4500 as income

babyontheway

Thanks for that, I was aware of ofsetting his future profit against previous losses but can they do it from his income to mine? That's the bit that sounds a bit dodgy to me.

They have allowed us to take his losses from last year and take them away from my earnings for last year.

newbie1980

hi

im self employed and got attacked 3 yrs ago so making loss for 2 yrs due to injury
and for 2 yrs the offset the loss against the wifes wages

so i believe youll be fine

mitch161

yes you can do this..

what was done was correct. last years loss against this years income.

and same again next year. this years loss against next years income.

just be careful though about where husband takes expenses out and how your treating the business.

although the business is at a loss is he actually putting his own money into business and not seeing any return. or business in debt. while he claims cash expenses for non business use or a salery.

there are some people that declare businesses as at a loss because they set it up that the only thing the business is losing is a selery charges and material costs..

if your husband is not claiming a salery. and is truly living on your wages while his business gets up and running then it is ok.

but if Business is at a loss but he is living off a commision/expenses/salery of business. then this can go badly.

you seem honest enough but just ensure your husband isnt claiming personal expenses. as it can affect the tax credits.. and also the revenue office in reference to your husbands business.

he may have to end up paying tax on any personal allowances aswell as tax credits, if they ever seek to check records.

enabledebra

babyontheway wrote: »

Thanks for that, I was aware of ofsetting his future profit against previous losses but can they do it from his income to mine? That's the bit that sounds a bit dodgy to me.

They have allowed us to take his losses from last year and take them away from my earnings for last year.

I haven't come across this rule before and it sounded odd to me too but if I'm reading this correctly apparently it's fine:

http://www.hmrc.gov.uk/manuals/tctmanual/TCTM04002.htm

enabledebra

Oops sorry CIS- missed your link.

Prodigy

Businesses run in similar ways for tax rules...i.e offsetting this years losses for up to 3 yrs against future profits however loss has to be considered in year of profit....again watch incases of expenses claims against his losses.

You should be fine in this circumstance....

Pennywise

As a general warning/advice, don't assume that the rules and options for dealing with losses follow through from one type of tax to another. Different rules apply for each different tax or benefit.

It is, for example, quite possible for a trading loss to be used in three different ways for income tax, tax credits and national insurance - i.e. set against other income of same year for tax credits, but carried back to earlier years for income tax and carried forward against later years for national insurance.

Just because it's set against other income in the same year for tax credits, doesn't mean you have to set it against same year other income for income tax!

But at least, between tax credits, NI and income tax, at least you use the same definition/principles to arrive at your "loss" figure in the first place - i.e. the same figure used for all three. When it comes to other benefits, such as council tax etc., there are different rules, so your "loss" figure can be different because the definitions are different.

Remember that although HMRC "administer" taxes, tax credits and NIC., the underlying rules are different and the departments don't routinely talk to eachother, so claiming a loss for, say, tax credit, doesn't mean that the loss will be registered for relief for NIC - you have to claim each separately to the relevant department.

babyontheway

That's great, thank you so much. I think we're OK on the business front. My husband is a copywriter so he only claims business premises and travel expenses. He doesn't draw a salary and the business has no funds of its own - if he needs to pay for something for work I pay for it and he pays me back as and when he gets paid by his clients.

Part of me is frustrated not to have known this before as he has made a loss for the last 3 years but then again I had only claimed WTC for the first time in March as I'd assumed that I didn't qualify!

hmo

what happens if you are both self employed and you are a ltd company and you both work for that (your own company) and make a loss please?