Self assessment - losses carried forward

LouiseDB

Hi,
does anyone know if there is a limit on how many years forward a loss can be carried?

Background: self employed, cash basis accounting, loss is from 2014/2015 and 2015/2016. In 2016/2017 and 2017/2018 have not used the loss against income as have come in under personal allowance limit, rather have carried it forward (section 35 of self-employment short form).

Reason for the question is that I am currently getting my 2018/2019 ready to submit in April (thought as once started on tax, keep going and actually catch up for once!) and it looks like I am going to be under the personal allowance threshold again, so the loss would be carried forward again. I'm not sure how many years I can keep carrying it forward.

Have looked at a number of sources and get "can be carried forward", time limits all seem to be with regards to using a current loss against a past profit. Just looking for a little clarity to future plan.

Thank you for your time.

01afraser4

Hi Louise

I think I have found some information that may answer your question (assuming I have understood it correctly).

At BIM85060, this advises that losses suffered can be carried forward and set off against the first year in which a profit is made. Any balance is then set off in the next tax year in which a profit arises.

This is set out under S83 Income Tax Act 2007 (ITA 2007). I have found the time limits for loss claims at BIM85075, which states the time limit under S83 is "Within 4 years from the end of the year of assessment to which the claim relates".

So, from my understanding, you should be able to carry a loss forward up to 4 years from the year it was suffered.

Please note that this is just my understanding of the information I've linked to, so someone more knowledgeable may be able to confirm if this is correct.

[Deleted User]

01afraser4 wrote: »

Hi Louise

I think I have found some information that may answer your question (assuming I have understood it correctly).

At BIM85060, this advises that losses suffered can be carried forward and set off against the first year in which a profit is made. Any balance is then set off in the next tax year in which a profit arises.

This is set out under S83 Income Tax Act 2007 (ITA 2007). I have found the time limits for loss claims at BIM85075, which states the time limit under S83 is "Within 4 years from the end of the year of assessment to which the claim relates".

So, from my understanding, you should be able to carry a loss forward up to 4 years from the year it was suffered.

Please note that this is just my understanding of the information I've linked to, so someone more knowledgeable may be able to confirm if this is correct.

That’s is a pretty good summary.

Pennywise

Sorry but your brought forward losses have to be used against the first available profits. You can't "choose" not to claim because current year profits are below the personal threshold. So yes, you could find they're wasted.

[Deleted User]

Pennywise wrote: »

Sorry but your brought forward losses have to be used against the first available profits. You can't "choose" not to claim because current year profits are below the personal threshold. So yes, you could find they're wasted.

Perhaps I have misunderstood the op but I have assumed that she has a self-employed loss and other income which is below the personal allowance in which case she can carry forward her loss.

LouiseDB

Thank you everyone, obviously still not a clear thing.

Just to clarify further - I am a sole trader, single source of income. So my loss is a self-employed loss in year 1 and year 2 of my business, year 3 and year 4 my income exceeded my expenses, but the net total for each year was below £11,000, so within the personal allowance.

The loss from year 1 and year 2 has been carried forward from year 1, year 2 and through year 3 and year 4. As I am below the personal allowance I have not used the loss as in essence it doesn't equate to anything as I've not paid tax anyway (not counting national insurance).

As I can go back and change the self assessment if required, I'm going to follow this up with HMRC for clarity.

[Deleted User]

You do not have the option to use carry forward losses just to the extent that the taxable amount is equal to the personal allowance. For example: you Have a profit of 12000 and a loss brought forward of 4000. The loss reduces the taxable profit to 8000 - personal allowances ARE wasted.

Good louch phoning HMRC tomorrow.

MDMD

01afraser4 wrote: »

Hi Louise

I think I have found some information that may answer your question (assuming I have understood it correctly).

At BIM85060, this advises that losses suffered can be carried forward and set off against the first year in which a profit is made. Any balance is then set off in the next tax year in which a profit arises.

This is set out under S83 Income Tax Act 2007 (ITA 2007). I have found the time limits for loss claims at BIM85075, which states the time limit under S83 is "Within 4 years from the end of the year of assessment to which the claim relates".

So, from my understanding, you should be able to carry a loss forward up to 4 years from the year it was suffered.

Please note that this is just my understanding of the information I've linked to, so someone more knowledgeable may be able to confirm if this is correct.

Losses don’t expire. S84 ITA 2007 basically says you carry forward using as much as possible as quickly as possible

https://www.legislation.gov.uk/ukpga/2007/3/section/84

The 4 years is the window to make a claim - so if something changes in a later year to increase profits you can amend your return to claim the loss.

LouiseDB

Good morning, thank you everyone for your replies. I very much appreciate them.

Just to update for anyone that later comes across this post and wants to know the outcome. I spoke to HMRC this morning (webchat, and saved for future reference) and the response was (taking into account sole trader using cash basis, so I cannot vouch that this information is correct if you are not a sole trader using cash basis):

- You do not have to use your losses
- Losses can be carried forward three years only (three, not four and I queried this and the response was it's three)
So you can decide not to use your loss from the previous year to offset against a profit this year, but you must use it within and up to 3 years. So 2014-2015 loss must be used by 2017-2018, and cannot be carried into 2018-2019.

So example:
2014-2015: loss of £5000 [loss carried forward to 2015-2016: £5000]
2015-2016: loss of £1000 [loss carried forward to 2016-2017: £6000]
2016-2017: profit of £1000 [loss used £1000 (from 2014-2015), carried fwd £5000]
2017-2018: profit of £1000 [loss used £1000 (from 2014-2015), carried fwd £1000 (2015-2016)]
2018-2019: profit of £3000 [loss used £1000 (from 2015-2016), no loss carried forward]

I am aware that a lot of people will say it's a waste of personal allowance and there would be better tax options using an accountant, and I agree. But for some we don't have income high enough and also an accountant may be too expensive. So hopefully this helps someone else that's also been stumped by this like me! Of course this may all change for future years!

UPDATE: PLEASE READ POSTS FOLLOWING THIS

[Deleted User]

Three years is just wrong:

S83 ITA 2007 to carry forward losses against subsequent profits of the same trade, or

Claims under S83 and S89 ITA 2007 can be made up to four years after the end of the tax year to which the claim relates so it is not always possible to make these claims in a return.

This is from HMRC business manual.

Secondly, and I am open to correction, but FOUR years is simply to
The time limit to CLAIM the loss NOT to utilise.
So the loss of 2014/15 must be CLAIMED by 5th April 2019 but this does not mean it has to be utilised.

MDMD is correct.

I am some time out of the profession and would be delighted if a current tax practitioner could confirm if this is no longer the case.

Pennywise

[Deleted User] wrote:

Secondly, and I am open to correction, but FOUR years is simply to
The time limit to CLAIM the loss NOT to utilise.
So the loss of 2014/15 must be CLAIMED by 5th April 2019 but this does not mean it has to be utilised.

MDMD is correct.

I am some time out of the profession and would be delighted if a current tax practitioner could confirm if this is no longer the case.

I agree, nothing has changed recently, the HMRC advisor is wrong.