Help with AIA when showing a loss

Candy_Red

My husband and I run a small business, which has grown somewhat over the last year. I have done a couple of tax returns for it, but this year we have moved premises and invested more money in tools and equipment so I'm looking to claim AIA.
However, doing a trial balance (without including any depreciation as this is not tax allowable) we are showing a loss. Do I enter the full cost of equipment into box 3.13 as AIA, then add this to all other expenses in box 3.25 which would virtually double the loss we are making (figures wise we're talking less than £20,000).
If so, can I carry the loss (or part of it) forward for next year's tax relief? I've never dealt with AIA before and I'm so confused. It sounded like a great idea being able to claim back your costs against your profit but how does it work if you don't make a profit?
As for next year, we now have most of the equipment we need and much better premises so should hopefully be in the black next year.
Any help much appreciated.

Artaxerxes

Candy_Red wrote: »

My husband and I run a small business, which has grown somewhat over the last year. I have done a couple of tax returns for it, but this year we have moved premises and invested more money in tools and equipment so I'm looking to claim AIA.
However, doing a trial balance (without including any depreciation as this is not tax allowable) we are showing a loss. Do I enter the full cost of equipment into box 3.13 as AIA, then add this to all other expenses in box 3.25 which would virtually double the loss we are making (figures wise we're talking less than £20,000).
If so, can I carry the loss (or part of it) forward for next year's tax relief? I've never dealt with AIA before and I'm so confused. It sounded like a great idea being able to claim back your costs against your profit but how does it work if you don't make a profit?
As for next year, we now have most of the equipment we need and much better premises so should hopefully be in the black next year.
Any help much appreciated.

There's guidance on the AIA at http://www.hmrc.gov.uk/manuals/camanual/CA23085.htm.

Claiming the AIA will increase your loss which will be automatically carried forwards to offset in future years, or can be set off any other income you have in the same tax year. Alternatively, you can claim to offset the loss against tax paid (arising from the same trade) in earlier years.

Candy_Red

Thanks for that Artaxerxes
I've been trawling through the HMRC and Business link sites looking for something relating to making a loss. I take it the relevant bit on that page would be

(But if a business that is a loss-maker incurs qualifying expenditure of £50,000 or more in a chargeable period it may, of course, claim the AIA in full for that year, to augment the loss it carries forward.)

So I claim the exact amount we spent on tools etc as AIA (in box 3.13) then add this to all other expenses, hence increasing the loss, then this is divided between us (we are equal partners) and claimed as an income tax loss on our personal tax returns???

will be automatically carried forwards to offset in future years, or can be set off any other income you have in the same tax year.

So will I need to refer back to this when doing 2011-2012 tax return or will it be automatically adjusted?

Sorry, my head's spinning from reading so much about it. I can handle basic accounts and double entry etc, but I'm wondering if I'm in over my head trying to do the partnership accounts. :think:

taxing

Hi
You can use tax losses to generate tax refunds if you have other income sources which bring you in to tax charge.

If the business if fairly new, then there are provisions that let you take the loss back for three years from the year it arose (so a 2010/11 loss goes back to 2007/08). Maybe one or both of you were in a job then and paid some PAYE tax?

Do you claim tax credits? The losses can help for that, too.

It may seem discouraging but I would recommend you get some professional help as it could be that there are more permuations to consider.

For instance, do you own or rent the premises? If you own the building then you could be able to claim some extra tax allowances on the fittings in the building.

Regards

Candy_Red

Thanks for the advice 'taxing'.

The business was originally started in 2008, my husband was in a PAYE job until January 2010. I am PAYE, self-employed AND a partner in the business so yes we have both paid a fair bit of tax since the business started.

For this year my earnings outside the business will mean I'll pay a little tax (not much though) but my husband has had no other income this year. Neither of us take a salary from the partnership. We do get tax credits.

I know you're right that I should get a professional to do it, but with the business currently makng a loss and me working 3 jobs to keep us afloat I just don't know where I'd get the money to pay them.

As for the premises, we rent, but we have fitted new lighting and ventilation etc, so can I include this in the AIA claim?

Thanks so much for any advice. I'm hoping at least by next year I can hand this part of it over to someone more capable.

chrismac1

There is also the question to consider of whether you want to make the claim. This is because there is a strict order of offset, starting with the last year. So claiming AIA can result in one or more of the partners not fully using their tax-free 6,475 allowance. It is often then better to carry forward and then claim standard WDA in future, but each case is different and what is best for one partnership may not be right for another.

taxsaver

It's also worth considering skewing the profit (sorry loss) split to something other than equal if (taking into account tax paid by each of you this year or previous years) this can increase your potential for tax refund.

Given that you say that you are struggling to make ends meet atm then I'd imagine a good tax refund would be very useful. Most accountants would be happy to deduct their fee from your refund when it is received, which is worth considering if with their help and guidance you get a bigger refund than you might on your own.

It is rather difficult, with the best will in the world, for any of us here to truly give you accurate advice without seeing all the information that you have. We often find that we spot many opportunities to claim things that the lay person would not think of.

Your call ofc, but it might be worth getting a couple of local quotes, you'll often find the smaller firms or sole trader accountants will give you the best prices and many of them are very good.

harryhound

AIA : Annual Investment Allowance : the amount a business can write off immediately against profit (ie tax) and not have to spread it over several tax years.
(For those of us who do not speak alphabet spaghetti)

taxing

chrismac1 wrote: »

There is also the question to consider of whether you want to make the claim. This is because there is a strict order of offset, starting with the last year. So claiming AIA can result in one or more of the partners not fully using their tax-free 6,475 allowance. It is often then better to carry forward and then claim standard WDA in future, but each case is different and what is best for one partnership may not be right for another.

If money is tight a bird in the hand might be better than reduced tax later if it helps keep the business afloat & viable.

The business started in 2008. If post 5/4/08 is in 2008/09. Loss in 2010/11 is within first 4 years of trade.

It (that is the whole loss - own share of course) can be carried back to 2007/08 for relieving purposes (no need to set against 2010/11 income first) and could be beneficial in producing a reasonable tax refund if one or both partners were in full time employment in 2007/08, or had another business making profits in that year. Agree that if the loss is very big, and more than the taxable income in 2007/08 tax year then personal alowances will be wasted.

However, where this happens and there are still losses to use, then the remainder of the loss carries forward to the next year - 2008/09 and gets setoff against taxable income in that year, too, and then any balance after that goes to 2009/10.

If there was a business making profits then some of the class 4 national insurance could be repayable if the profits in these years were high enough that class 4 national insurance was due.

Also, the claim is individual so if husband (or wife) alone has enough earnings for a viable claim he/she can go ahead - the other partner's claim is completely separate and he/she has their own choices.

If pre 6/4/08, so 2007/08 then still within first 4 years.

Get professional help as advised - this is the sort of stuff they can quickly sort out for you.

Regards

Candy_Red

Thanks again. I think I'm going to have to admit defeat as I'm in way over my head. Will have to get some quotes and see how much it's going to cost me to get a professional on the job
I see I can end up costing the business more than I'm saving by trying to do it myself.