Claiming AIA

SHARPYWAN

Hi, can i claim AIA on a double decker bus purchased as a mobile soft play center, which is now my business as a sole trader. if so i will show a loss of around £30k in 1st years trading, can i then write some off that against my earnings as an employee earlier in that same year?
thanks

chrismac1

This depends on the invoice date, providing the asset was brought into use in the business on that date. AIA is £25k from 6 April 2012, was previously £100k. So if the date is before then you can claim the full £30k. if not, you claim £25k AIA and writing down allowances on the rest.

For losses, you can have various reliefs - one of which is "sideways" against other income in the same tax year.

If you want a proper job done with this stuff, hire a good accountant. Just in this one post we're dealing with both AIA and loss reliefs and haven't even explored other issues in your business at all.

SHARPYWAN

Thanks, was just checking that it was ok to claim it on Double decker bus, as i know not all vehicles can claim AIA.

I worked as an accountant for last 12 years, management accountant rather than financial, hence why not totally clued up on some of the more technical aspects.

So i guess, as an example if i earnt £15,000 from April 2011 - July 2011 paying £3,000 tax as an employee. then became sole trader from aug11 - april12 there would be no point showing losses of more than £15,000 would there? or is it possible to carry £15k losses back and then say another £10k forward to 2013??

ceeforcat

Have to agree with chrismac on this one - why take the risk of making an irreversible incorrect decision?

Anyway, let's say that you have a £25000 loss.

You have three options:

a) loss set against three previous income tax years, earliest years first.
b) carried forward in totality.
c) set against current year income (your £15000) with the balance to be carried forward. Note that you will have to use ALL of the 15000 with, therefore, 8105 'wasted' as already covered by your personal allowances. As it stands 15000 losses will attract tax relief of £1380 - is that worthwhile?

SHARPYWAN

Thanks,

in response to options you gave
1) so y/e apr11 earnings = £45k
y/e apr12 earnings = £15k
y/e apr12 business losses = -£30k
can i put £7k (£15k less personal allowance) loss back to y/e apr12 and £23k y/e apr11

Do i have to carry full £15k back? or could i not just carry back the difference between earnings and personal allowance eg (£15k-£8k = £7k)

3) do i have to carry back full earnings £15k or can i not £15k less personal allowance approx £8k?
how you calc the £1380 - sorry if being dense!!

Many thanks

chrismac1

My assessment of this is:

Chances you get this right doing it yourself 10%

Chances you make a complete dog's dinner of this which comes back to bite you 2 or 3 years down the road 90%

We're into AIA and some complex loss relief stuff, and you're proposing to complete a tax return based on some posts on a website. Good luck with that.

My suspicion is that what you've posted on here is the tip of the iceberg, and even if you get these issues right - which is unlikely - there will be others, which you've posted nothing about, which take you down.

ceeforcat

I hope that you can now see that you do need to take some advice on this as your post does indicate your dilemma e.g. if you were to set back your loss on the 'early years of trade' rules for 2011/12, it is 2008/09 income that is most important, not 2010/11. It is earliest years first. You must fully utilise the loss against the TOTAL income of each year and Personal allowances could be wasted and you cannot therefore choose to set back only £7000. There are many other options those, including a restriction on the Capital Allowances that you may claim.

On the £1380 issue:

The PAYE tax due for 2011/12 on 15000 of income is £1380 (15000-8100) @20%. If you made NIL profit you would obtain a refund of £1620 on this (£3000 paid less £1380 due). If you made £25000 losses and used 15000 of them to set against this PAYE income, you would obtain a refund of £3000. The effect of those 15000 losses is to obtain an additional refund of £1380.

SHARPYWAN

Thanks for help so far.
Just to be clear, i worked as a management accountant for 12 years so have a broad knowledge of most accounting procedures. this is just an area i'm not too sure of, so really appreciate help thus far.

So using actual figures now:
2011/12 earnings as employee £18,634
tax code 747L tax paid £2,854

2011/12 sole trader losses -£38,521 (including £34,930 AIA)

So the way i understand is, if i write back losses to previous years i will lose out on personal allowances in those years, so not best option.

question is can i do the following:
write off losses against my earnings as employee 2011/12 of just £11,164 (£18,634-£7470) therefore getting full refund of tax paid 2011/12 (£2,854) and still utilising fully my personal allowance (£7,470)
Then carrying remaining losses £27,357 (£38,521 - £11,164) forward to 2012/13

I think this is most sensible thing for me to do, if it is allowed?
any advice greatly appreciated

Thanks

Elaine_Wilson

What you are doing is not allowed. With sole trader losses of £38,521 you need to offset £18,634 against the employment income and carry forward £19,887.

Considering this year in isolation you should reduce the claim for AIA to £7,573 which will give you a total self employment loss of £11,164. Using this against the employment income will preserve the benefit of the personal allowance.

Unfortunately, if you do this you will have no losses to carry forward to 2012/13 but you will have an extra £27,357 in the capital allowances pool on which WDA can be claimed. This may or may not be acceptable depending on how you see the profitability of this venture and its cash flow requirement over the next few years .

ceeforcat

Elaine was more prepared to go into detail than I was as it is an area of expertise which should given more regard than posting on a forum such as this and accepting the word of anonymous posters.

The figures from Elaine are exact but the op needs to understand that, as I have said more than once, setting losses against any year much be against total income, not just that above the personal allowance level.

chrismac1

There is a gulf between being a good management accountant and dealing with this sort of stuff. That is exactly why I have some clients who are managment accountants, in one case a Finance Director of a £100m company.

We are correcting the blunders we know about. I will bet anyone £1,000 cash at evens there are also material blunders we don't know about. Money to be paid into an escrow account, winner of bet to have authority to withdraw the full balance.