how to deal with a loss on tax return?

dompote_2

Hi. I am about to submit my Self Assessment tax return and for the first time my business has made a loss. My accounts are minus £5k. I want to know how best to claim this loss. Should I carry it all forward to next year and therefore reduce my next tax bill? Or should I carry it back - last year I made a profit and paid around £500 tax - would I get any of this back? Also, how should I best use this loss with regards to tax credits? Can it be carried forward for tax credits? Any advice would be very welcome. Thanks.

jimmo

Assuming that your business is your only source of taxable income if you paid £500 tax for 2011/12 your tax assessment would have been:

Profits 9975

Personal allowance 7475

Taxable 2500

Tax due (2500 @ 20%) £500



Mathematically you would only need to carry back 2500 of your 2012/13 losses to reduce your 2011/12 profit to 7475, your tax liability to nil and get a £500 repayment. Sadly for you, tax doesn’t work that way. Its all or nothing so that, if you choose to carry back, you have to carry back the full 5000 reducing your 2011/12 profits to 4975. If you do so you will still get a £500 repayment but there will be no losses available to carry forward.

I think your dilemma is basically what is important to you? You can get £500 in your wallet now or sit on your 5000 loss in the hope or expectation that you can make more tax efficient use of it later. I think if I were in your shoes I would grab the £500.

I haven’t really got a clue about tax credits, sorry.

nomunnofun

jimmo, of course, is correct as losses have to be set against total income and the dilemma is as he has described. However, is there any way that the op could reduce the loss this year - I think specifically of reducing the capital allowances claim to the point where the loss is £2500?

For example:

Currently: Adjusted loss £2000 less Capital Allowances £3000 = taxable (?) loss £5000

Amend to : Adjusted loss £2000 less Capital Allowances £500 = net loss £2500. This would be fully relievable and would increase the brought forward pool for Capital Allowances.