can expenses/capital allowances claimed against the PAYE income tax

challengesahead

[Deleted User] said:

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?

Am just about starting so haven't got exact figures yet. 

challengesahead

caprikid1 said:

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.

Hmm....cleaning services isn't my hobby tho. 

challengesahead

@caprikid1 If you are renting your cars, surely its a business and claim all the expenses related to it. Why not?

DullGreyGuy

caprikid1 said:

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.

A side hustle and a hobby isnt the same thing.

If its a side hustle and you've over £1,000 in revenue you absolutely should be declaring it on your self assessment. You can only claim expenses for items wholly purchased for your business activities. If you filled your garage with tools for your business exclusive use then you would declare them as such... if you bought them for your hobby and occasionally use them in your business then its likely unrecoverable. 

Jeremy535897

The key to it is whether you have a trade carried on commercially with a view to profit, as opposed to a hobby for recreational purposes. Only losses arising in the former may be claimed against other income. By their very nature, hobbies tend to be loss making, but if your hobby has over £1,000 of revenue in a tax year it probably should be declared, even if the expenses exceed the income.

[Deleted User]

Jeremy535897 said:

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.

Yes - the main point is that one receives tax relief on the loss, not recovery of the loss in terms of tax. Pedantic perhaps, but importantly, there is also a loss to be carried forward for Class 4 NIC of 20000, but perhaps outside the scope of the query. 

Jeremy535897

purdyoaten2 said:

Jeremy535897 said:

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.

Yes - the main point is that one receives tax relief on the loss, not recovery of the loss in terms of tax. Pedantic perhaps, but importantly, there is also a loss to be carried forward for Class 4 NIC of 20000, but perhaps outside the scope of the query. 

Indeed, one of the most common oversights by accountants, in my experience:
https://www.gov.uk/hmrc-internal-manuals/national-insurance-manual/nim24610

[Deleted User]

Jeremy535897 said:

purdyoaten2 said:

Jeremy535897 said:

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.

Yes - the main point is that one receives tax relief on the loss, not recovery of the loss in terms of tax. Pedantic perhaps, but importantly, there is also a loss to be carried forward for Class 4 NIC of 20000, but perhaps outside the scope of the query. 

Indeed, one of the most common oversights by accountants, in my experience:
https://www.gov.uk/hmrc-internal-manuals/national-insurance-manual/nim24610

For two reasons mainly:

1) Lack of knowledge 
2) Forgetting to keep including it if not utilised.

(Not that I have ever been guilty of 2) of course)

The really daft thing is that this must be claimed on the self-employment pages (full) - last box 102.

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1063747/sa103f-2022.pdf

• losses you brought forward but have not set

against profits chargeable to Class 4 NICs