New business tax implications

WashingTime

Dear all

I'm sure several of you have come across this situation so I'd appreciate your experiences if that would be ok?

I'm currently employed on a reasonable salary which sees me pay £5460 in PAYE and £3300 in NI. All tax is taken at source and I do not complete a tax return.

I am exploring setting-up a new business which is likely to incur some small start-up costs in the first year (say £5k) with negligible revenues. I'm confident that there is potential for longer-term profit so certainly is a kosher business.

Is there any prospect for me to bring together my personal tax affairs (either or both of PAYE and NI?) with this burgeoning enterprise so that my first year investment can be cancelled-out? Of course in future years, the theory is that I'd pay the taxes on business profits and my substantive employment so George Osborne can sleep soundly knowing that he'll get his cash down the line...

I appreciate that I'd need an accountant to do the detail but at this moment I'm just keen to get the principles correct in my head ... because that £5k would be a big help.

Thanks for reading ... and hopefully your responses!

Pennywise

You won't get your £5k back out of tax, but you may get tax relief on the £5k.

You can set your business/trading loss against your other taxable income. So if you're a basic rate taxpayer, you may get £1k tax refund from your £5k loss, i.e. at 20%. If you're a higher rate tax payer, you may get a £2k tax refund, i.e. at 40%.

WashingTime

Pennywise - thanks so much for that. Very helpful and you know your onions!

Would you be able to elaborate on the process through which this could be applied - would it be my tax return?

Also - you used the phrase "may get a 20% tax refund". Is the "may" subject to the discretion of the taxman or automatic as long as I do the necessary?

Thanks