Can I claim back PAYE from the same year if my self employment runs at a loss?

TimLeB

I was recently told that if my self employment business ran a loss I was entitled to claim back PAYE from my part time job to cover the difference. Is this correct and if so how do I go about claiming it back? Any idea of the time-scale involved and are there any other implications I should watch out for? Thanks

Pennywise

Yes, you can offset the self employed loss against employed income and claim any tax refund. You claim it via your self assessment tax return shortly after the tax year end.

PlutoinCapricorn

You do need to ensure that the self employment is genuine though, and not just created as a clever way to pay less tax overall. If it runs at a loss year after year, HMRC may well decide to investigate.

TimLeB

Thanks for the replies guys, my self employment is genuine and has been running for a few years now, I've never made much profit as I did it to come off jobseekers and put most of the money back into equipment etc. I still have to put in a return for last year so I'm thinking if I make a small profit from last year then this year I could buy a cheap second hand vehicle which would probably take me into a loss. Should be okay I guess?

TimLeB

So is it as simple as; if my business runs £1000 loss I get back £1000?

Elaine_Wilson

TimLeB wrote: »

So is it as simple as; if my business runs £1000 loss I get back £1000?

No, you get tax relief on the £1,000. So £200 if you are a 20% taxpayer.

CLAPTON

the details area little unclear

I'm a little confused when you say you have been running at a loss.... how have you been funding the loss?
you say you have been put most of the money back into equipment seems to imply that you were making profit

if you are self employed then you should have been summitting a self assessment each year

TimLeB

Thanks Elaine that's what I was wondering, seemed too good to be true.
Clapton: To clarify, I did not say I was running at a loss; I have submitted a tax return every year; When I say I was putting the money back into equipment I meant that rather than paying myself a (rather poultry) wage I was using the money earnt by my business to buy equipment required by the business for it to be sustainable. This equipment represented legitimate expenses and the expenditure was significant enough that by the end of the tax year there was little or no profit left. I did so by sacrificing my lifestyle, living off housing benefit and tax credits for the first couple of years trading in an attempt to create a sustainable business doing something I enjoyed further down the line. I subsequently took a part time position to run alongside the self employment. I am taking my driving test this year and a vehicle would definitely help me to secure further work. I am considering a hypothetical situation whereby I buy a vehicle with interest free credit through the business which would mean the business going into loss this year and was wondering how a rebate from my PAYE would affect this situation.

ben.bayliss

The answer to your original questions is that yes, at the end of the tax year when you fill in a return, any self employment losses can be offset against other income to reduce your tax liability and therefore get a bit of a refund from the taxman.

Do bear in mind that all the equipment you own will be taxed when you come to sell it off, as you are likely claiming 100% deductions for it now. That is unless it is worth absolutely nothing when you do indeed scrap it.

Also, beware not to confuse 'the business' as you're describing it with yourself. There is no business - only you. Any finance you manage to get will be in your name. If you do actually incorporate a real company, then it and you become two very different entities, and are taxed in a whole different way.

I wonder how many posters will be sympathetic to the idea that by manufacturing a loss-making business, you were able to claim benefits...

TimLeB

Your last comment could be seen as a little harsh but I think that's maybe what Clapton was hinting at too. If you were claiming jobseekers and accumulating debt but were then able to secure a small amount of freelance work, you may if you were sensible, have done the same. We're not talking big turnover here. It would have been pretty short-sighted of me to just to do the odd freelance job that came by without making a serious attempt to increase that workflow by investing in equipment and trying to up my professionalism. To put it into perspective my earnings for the first two years that this was the case would have been under the taxable threshold. I have since worked full time in care and have now reduced my hours to part time. I have volunteered and been paid to work on community projects. It's not like I was trying to milk the system without putting anything back in. I am aware that any assets I sell on are taxable.

"I wonder how many posters will be sympathetic to the idea that by manufacturing a loss-making business, you were able to claim benefits..."
As re-iterated in my last post I have never made a loss so far, benefits are paid to those on a low income which included me for some time. I would probably still be on benefits had I not invested wisely in the business ie bought my own tools.

Anyway we digress off topic, I wasn't looking to be judged or asking for a conservative moral stand-point about the benefit system merely some useful advice. Thanks then to those posters who have answered the question I asked, very helpful. I hope you all continue to prosper with your money saving.

Pennywise

Also remember you don't get a 100% tax relief on purchasing a car as it's not "plant".

So if you spend £1,000 on a car, in year one, you get tax relief of 20% which is £200 which is set against other income, to get a tax refund of £40!. £800 of the cost is then carried forward to year 2 and so on.

So, no, buying a car won't reduce your taxable profits or increase losses by the cost of a car.

You'd need to buy a van, on which you would indeed get full tax relief in year 1.