Basic rules on claiming losses on tax returns

toby_puppy

Getting a bit confused about losses carried forward andcurrent year losses for 2011.12.

If I’ve got a brought forward loss on the 2011.12 TaxReturn, I can only use this against profit on the same business, ie. If thereis a self employed dog grooming business with a loss brought forward, this losscan be used against profit on the dog grooming business in 2011.12, with anyremaining loss carried forward to be usedagainst dog grooming business future profits?

If there was a loss brought forward on rental property, thiscould be treated the same – ie. Offset part of it against rental profits in2011-12, with remaining loss carried forward to be used against rental profitsin future?

Then there is the case of offsetting losses against OTHERincome. In the case above if the doggroomer made £5000 loss in 2011-12, this could be offset against rental profits in 2011-12, provided you use the WHOLE £5000 – ie. You couldn’t use part of itand carry remainder forward?

By the same token, the dog groomer makes a profit in 2011-12but the rental accounts showed a loss of £2000. I could offset the whole of the £2000 rental loss against the doggrooming profit in the same year, but I couldn’t use part of the loss, I wouldhave to use ALL £2000?

I know there are also opportunities to carry losses back somany years, but for the time being, just want to clarify basics for lossesbrought forward and carried forward and losses offset against other income inthe same year.

Thanks – the bit that’s confusing me is under whatcircumstances you can’t use PART of a loss, I’m thinking it’s when you’re usinga loss on one trade against another source of income in the same tax year?

ceeforcat

By the same token, the dog groomer makes a profit in 2011-12but the rental accounts showed a loss of £2000. I could offset the whole of the £2000 rental loss against the doggrooming profit in the same year, but I couldn’t use part of the loss, I wouldhave to use ALL £2000?

This bit is completely wrong, I am afraid. Rental income is regarded as investment income and losses cannot be set against other income. Only trading losses can be set against any other income.

Then there is the case of offsetting losses against OTHERincome. In the case above if the doggroomer made £5000 loss in 2011-12, this could be offset against rental profits in 2011-12, provided you use the WHOLE £5000 – ie. You couldn’t use part of itand carry remainder forward?

This is also incorrect. If the rental profits were £2000, you need only to use £2000 losses and carry forward £3000. The problem arises when the income against which you are setting losses is above the personal allowances and any loss claim results in wasted personal allowances. If, for example, you had £5000 trading losses and £11000 PAYE income, you either claim £5000 losses against this income (reducing it to £6000) or not at all. You cannot claim £2895 to reduce the PAYE income to £8105 because it suits.

Losses have always been, and remain, a very complex area of taxation. You could find that an incorrect claim will cost you unnecessary tax and the time limits are extremely strict. It is not really an area for a non-expert to be challenging, in my opinion.

toby_puppy

thanks, this makes much more sense now.

toby_puppy

so, if the rental profits were £11000 then the same would apply as in the example you used on the PAYE income ie, we would only be able to use the whole of the £5000 loss from the dog grooming against the rental profit and not part of it to retain the personal allowance?