can expenses/capital allowances claimed against the PAYE income tax

challengesahead

I am  full time employed and starting a business as a self employed. Since I am just setting up would be buying equipments and a vehicle. I won't making any profits this year, due to initial investments. Can i claim those cost(loss for 1st year?) against my income tax from PAYE ?

DullGreyGuy

It depends on your accounting mechanism... if its accruals you can offset trading losses but many use cash accounting and you can't with that. 

DE_612183

Expenses if you're self-employed: Overview - GOV.UK (www.gov.uk)

DullGreyGuy

DE_612183 said:

Expenses if you're self-employed: Overview - GOV.UK (www.gov.uk)

Might be being stupid but where does that touch on the OP's question about offsetting trading losses against PAYE taxes paid @DE_612183?

challengesahead

Am not very familiar with the terms and type of accounting as I am just starting out.

Lets say, using accruals accounting I bought 20k worth of equipment and electric van/car. And If my annual income tax is 25k, I can claim against it. What happens when my self employed business starts making profit in 2 or 3rd year?

DE_612183

I've only done Ltd Company so I assume the same applies - but if you draw money from the business and pay it into your bank account - then you pay income tax and NI on that.

You declare your income via self-assessment.

What it sounds to me like you are saying is that "I'll make no profit this year, but I'll still pay myself" - thats the bit I'm unclear on - how can you pay yourself if you have no profit?

challengesahead

Income 1- via Payee  (paying annual income tax eg- 25,000)
Income 2- new self employed trade. (no profit, spent 20,000 to buy equipments)

My question is, does HMRC takes into consideration the loss(money spent on equipment for soletrader business) when calculating full years tax? (ie 25000 -20000 = 5000 outstanding tax to pay)

I would imagine its different for Ltd companies, as it is a complete different entity. I could be wrong tho

Jeremy535897

It does not work like that. If you make a trading loss in a sole trade, and you use the accruals basis of accounting, you can set that loss against other income if your sole trade is carried on commercially with a view to profit. There are lots of options for losses in the early years of trade. However, the set off is against your other income, not against the tax you have paid. On your figures, the amount of tax you might recover would be £20,000 at 40% = £8,000, not £20,000. If your sole trade starts making a profit in future years, your income tax rate is likely to be 40%, and there is also class 2 and 4 NIC to pay.

Limited companies are very different.

[Deleted User]

DE_612183 said:

I've only done Ltd Company so I assume the same applies - but if you draw money from the business and pay it into your bank account - then you pay income tax and NI on that.

You declare your income via self-assessment.

What it sounds to me like you are saying is that "I'll make no profit this year, but I'll still pay myself" - thats the bit I'm unclear on - how can you pay yourself if you have no profit?

This really is not helpful. The first paragraph is completely wrong information in its entirety - money drawn from a self-employed business has no effect on profit or tax payable. 

In the final paragraph, one can pay oneself whatever one likes provided there are sufficient funds. 

[Deleted User]

challengesahead said:

Income 1- via Payee  (paying annual income tax eg- 25,000)
Income 2- new self employed trade. (no profit, spent 20,000 to buy equipments)

My question is, does HMRC takes into consideration the loss(money spent on equipment for soletrader business) when calculating full years tax? (ie 25000 -20000 = 5000 outstanding tax to pay)

I would imagine its different for Ltd companies, as it is a complete different entity. I could be wrong tho

What is the loss on the self-employment including the claim for equipment? I imagine it is not exactly £20000?

caprikid1

Unfortunately, not, if you could everyone would have side hussle (Hobby) that effectively wrote off large chunks of PAYE.

I hire classic cars for weddings, if I could do as you would like then I would put all my garage expenses tools etc against my PAYE. The amount earned from weddings in negligible put annual costs are often quite high.