Self-assessment, expenses claim from previous year

davidnipper

Hi,

I started working on my business (buying tools such as computers, software etc) in 2013-2014. I spent around 10k on various items and also spent time off work (working on these projects).

I didn't do any active trading until 2014-2015 (since I had no income coming in, just outgoings). I registered for self assessment in Dec 2014.

Does this mean (since I didn't register for the 2013-2014 period), that I cannot carry over the expenses from 2013-2014 period into 2014-2015?

Due to the simple fact that I had not registered the business with the inland revenue?

Cheers

chrismac1

No. Your first trading was in 2014-15 tax year. Earlier expenditure on the business is treated as if it arose on the same day as your first invoice, or customer receipt. i.e. in 2014-15.

You can go back 7 years with this stuff - called "pre-trading expenditure". Actually I think one of the 2 budgets might have reduced this to 4 years in line with VAT returns, as I've never done one for a client beyond 3 years back this is of academic interest only.

chrismac1

http://www.hmrc.gov.uk/manuals/bimmanual/bim46355.htm

http://www.hmrc.gov.uk/manuals/bimmanual/bim46351.htm

davidnipper

Hi Chrismac1,

Sorry, if Im a bit confused.

Are you saying that I can claim for up to 7 years costs that I have incurred (in gathering tools for the business)??

Even though I registered for self assessment in 2014-2015?

purdyoaten

davidnipper wrote: »

Hi Chrismac1,

Sorry, if Im a bit confused.

Are you saying that I can claim for up to 7 years costs that I have incurred (in gathering tools for the business)??

Even though I registered for self assessment in 2014-2015?

As chrismac says, you will have incurred expenditure prior to setting up your business which can be claimed.

However tools are what is known as capital expenditure. In your case you need to place a value on all of the tools that you have purchased for use in the business at the date you commenced. You can claim capital allowances on these at the rate of 100% (Annual Allowance). Be careful though - you cannot claim this 100% allowance on tools that you have gathered up over the years which were not bought specifically for this business, whether or not you will be using them - the allowance is only 18% in this instance.

http://www.accountingweb.co.uk/anyanswers/question/annual-investment-allowance-assets-introduced

You can also include, of course, any tools that you buy in 2014/15 after the business has commenced.

davidnipper

Thanks so much for the replies. One more question?

If your pre-trading expenditure (between 2010-2015) is much larger than your revenue in your first trading year, can you carry more of the losses into the next year 2015-2016? e.g.

Pre tax expenditure (2010-2015): £20k
Revenue 2014-2015: £5k

This leaves £15k losses. Can these be offset against 2015-2016? Will they keep rolling over to the next year until the losses have been recouped?

purdyoaten

davidnipper wrote: »

Thanks so much for the replies. One more question?

If your pre-trading expenditure (between 2010-2015) is much larger than your revenue in your first trading year, can you carry more of the losses into the next year 2015-2016? e.g.

Pre tax expenditure (2010-2015): £20k
Revenue 2014-2015: £5k

This leaves £15k losses. Can these be offset against 2015-2016? Will they keep rolling over to the next year until the losses have been recouped?

You are correct - they can be carried forward against profits from the same trade. However, what was your income in 2011/12?
Also have you really no expenses in 2014/15 against the £5000 revenue?

davidnipper

Hi purdyoaten,

I make software, so I spent between 2010-2014 making a software program and then 2014-2015 was spent launching/selling it (with very few expenses in this year).

My income was nothing between 2010 and 2014.

It is worth noting that I only registered for self assessment in Dec 2014. Does this mean I may have problems with the expenses from the previous years??

chrismac1

With all respect you should hire an accountant if you want this done properly. We're discussing a simple concept here and you've had several goes at it, plus postings on the subject from the HMRC site. There are almost certain to be blunders elsewhere in what you are doing that you don't know about and hence have not posted up.

PlutoinCapricorn

You register with HMRC as a sole trader once you have some definite sales, assignments, clients, work etc. not in advance just on the off chance. HMRC know that in some professions you can't do anything until you have got the tools etc. ready so expenses that date before your official trading start date are legal.

You do need supporting evidence though: the stuff really must have been bought for your future business.