Self-employed tax help - please!

chrismac1

This is in fact a no-brainer, providing a bit of effort with HMRC is worth a £400 tax refund, providing he paid £400 in PAYE whilst he tried this business venture.

There have been various tax cases where HMRC attempted to block this, but it won't work in your case. Actually making a profit is not a requirement, merely the intent to do so. You can demonstrate that, he's spent time on this, he's marketed it and he's spent money on it.

To get the refund you will, however, have to register for self-assessment. This is where it could get tricky, as you are late for doing this for 2010-11. However, as no tax was due there should be no penalties, this is not the case for 2011-12 and later years but you have until 31 Jan 13 to file for 11-12.

The tax return should include his trading loss, his PAYE income and tax paid, and any other income. if you are going to DIY this I suggest you play around with the HMRC software before you register, because if you end up having to hire an accountant all the refund will end up going on fees.

You also have to consider your hourly rate for this. If you are really efficient and can find your way round the system, you can probably get into SA and out of it the following tax year - by ticking the box on the form saying you've ceased trade, then asking to be removed from SA - for 20 hours time spent.

So that is £20 per hour. Any inefficiency or messing up and you could easily end up with 40 hours so £10 per hour. I leave it to you to consider whether these rates of pay are worth it.

jimmo

As your partner already makes Self Assessment Returns there is no need to worry about registering his self-employment and he can claim his 2011/12 loss by amending his 2011/12 return on-line.

If part of the loss arose in 2010/11 he will need to claim for that separately by letter.

You say he started his business in 2010. What matters to HMRC is the date when he started trading. That can be an extremely complicated question but a simple approach is to identify the date when he got his first paying customer.

As he had no paying customers that doesn’t work for you so, in an attempt to keep this as simple as possible, he may like to think that he started trading some time in 2011/12.

Anything he spent on his business prior to the commencement of trading is termed “pre-trading expenditure“ and is allowable as if it were spent on the day of commencement.

http://www.hmrc.gov.uk/manuals/bimmanual/BIM46351.htm

If that is feasible your partner could amend his 2011/12 Return now by adding the short version of SA103. Fill in boxes 1 to 7 giving a commencement date early in the year and cessation date at least a few months later (and after he last spent money on the business) but before 5 April 2012. Also complete boxes 8,19, 21 and 32

If he hasn’t already done so, he should also give his bank account details in the main body of the form (page 5 of SA100)

In theory at least, if he does all that on-line, the repayment should be in his bank account in a matter of days.

As others have said, penalties are geared to the amount of tax and National Insurance unpaid. That is most definitely nil.

Savvy_Sue

It is good to know that I am not imagining that you can offset losses in s/e against tax paid via PAYE. Sometimes I wonder if my mind is going ... actually sometimes it is, but hey ho!

barfer

Thanks, guys. We can say he started the business in Oct 2010 because that is when his website went live. It's looking like we should give it a go.