Self-employed: putting money into business

runningoutoftime

Hello.

My OH is self employed. She is doing her return for April 09/10.

During that period, she put £6,000 of her own money in the business to buy equipment. The equipment would have a life of 3-5 years.

Her expenses (excluding this figure) is in the region of £5,000 and her income was C £8,000.

Is this a loan to the business? How would she claim this figure back?

Thanks.

chrismac1

This post assumes she's a sole trader not running a limited company.

The equipment is a fixed asset addition in the accounts, and Capital Intoduced into the business on her part. She can claim up to £50,000 in first year allowances if she has a 12 month accounting period, so £6,000 of capital allowances.

So her net loss is £3,000 and relief for this can be claimed in a number of ways, the main ones being:

1. Against any other income in the year - potential tax rebate.
2. Against her profits in the preceding 3 years - normally 1 but extended due to recession - potential tax rebate but often not worth claiming this way if she eats into her tax-free allowance as a result.
3. Carry forward against profits for 10-11 and future years.

runningoutoftime

Thanks!

Re: point 2/

She did not make enough to pay tax in 08/09 but she did pay just over £1,000 in tax in 07/08. So can she claim this back? How does she do this please? Where on the on-line form does it go? Will the tax office send her a cheque for £1,000 or is it off-set somehow?

What do you mean by:

often not worth claiming this way if she eats into her tax-free allowance as a result.

Thank again for your help.

zygurat789

The losses have to be carried back to previous years in a specific order.
1. Last years income (including the 6475 tax free) has to be reduced to nil before any losses left can be carried back to the previous year.
2. The previous years income has to be reduced to nil (including the 6475 tax free ) has to be reduced to nil.
So each year up to £6475 worth of losses are used and generate no tax repayment.

runningoutoftime

Thanks, but do you know where on the form you do this?

John_Pierpoint

I don't want to be guilty of making a takeover bid for this thread.

However as someone who is self employed, but who hopefully will never make an overall loss, is one forced to claim in the order 1. year of expenditure 2. prior years 3. carry forward to future years?

I can think of making a fairly large capital investment that could produce a zero tax for a year and write off the personal allowance (6475) but a chunk carried forward to next year could perhaps be set against 40% tax if all went well?

ceeforcat

John - if the loss is under S.380 and, say, your year end is 30 Sep 2009 you can set this against 2009/10 income or by reference to 2009/09 income or to both years. You can choose either year but as in the prior example must be set against total income with the resultant loss of PA.

You also enquire as to you are forced to claim in any particular order - you are not. It is up to you which loss claim you decide to make.

ceeforcat

zygurat789 - are you sure about the order of loss relief - I always understood it to be earliest year first!

Edit - fairly sure now!

http://www.hmrc.gov.uk/manuals/bimmanual/BIM75450.htm

zygurat789

ceeforcat wrote: »

zygurat789 - are you sure about the order of loss relief - I always understood it to be earliest year first!

Edit - fairly sure now!

http://www.hmrc.gov.uk/manuals/bimmanual/BIM75450.htm

Yes, that's the new legislation. I was in terminal losses mode.

Either way the point is unless the losses are large losing the benefit of PAs needs to be looked at very carefully.

http://www.hmrc.gov.uk/manuals/bimmanual/bim75480.htm

John_Pierpoint

So if one was thinking of buying a van and a posh trailer, intending to tour country fairs (Van would be office/overnight sleeping quarters and trailer opening out to a showroom) then assuming one's accounting year lined up with the tax year. It would be advisable to take delivery of the van at the end of March and the trailer in April; thus reducing profits by 25K in each year, in this hypothetical example ?

ceeforcat

If the expense is eligible for CA - I would see this as perfectly sensible. Obviously you do not need to me to tell you that you can restrict your Capital Allowances claim to preserve your PA.