Working PAYE and self employed - tax offset allowable expenses question

I live in Scotland and am employed by the council earning just over 43k on PAYE. On this PAYE income I pay approximately 10k per year in tax. In addition, I run a B&B business and the business made a 20k loss though allowable expenses last tax year (registered as a sole trader). Am I right in thinking that as tax is calculated on total earnings, which include PAYE through my employment and self employed B&B income that I will get a cheque back from the inland revenue for the 10k tax that I have paid on PAYE?


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  • pramsay13
    pramsay13 Posts: 1,922
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    Not quite as simple as that but yes your genuine expenses can be offset against your other income. 
    Is it worth reconsidering your self-employment given the viability of the business?
  • I live in Scotland and am employed by the council earning just over 43k on PAYE. On this PAYE income I pay approximately 10k per year in tax. In addition, I run a B&B business and the business made a 20k loss though allowable expenses last tax year (registered as a sole trader). Am I right in thinking that as tax is calculated on total earnings, which include PAYE through my employment and self employed B&B income that I will get a cheque back from the inland revenue for the 10k tax that I have paid on PAYE?


    No idea how you come to that conclusion?

    Do you prepare your accounts on the accruals or cash basis?

    Also, I presume you realise Self Assessment is what it says on the tin, any refund would be based on how you complete your own tax return.
  • pramsay13 said:
    Not quite as simple as that but yes your genuine expenses can be offset against your other income. 
    Is it worth reconsidering your self-employment given the viability of the business?
    Not sure how you can know that from what the op included in their post?
  • I live in Scotland and am employed by the council earning just over 43k on PAYE. On this PAYE income I pay approximately 10k per year in tax. In addition, I run a B&B business and the business made a 20k loss though allowable expenses last tax year (registered as a sole trader). Am I right in thinking that as tax is calculated on total earnings, which include PAYE through my employment and self employed B&B income that I will get a cheque back from the inland revenue for the 10k tax that I have paid on PAYE?


    Taking into account what Dazed has said and you have prepared accounts on the accrual basis losses can be set against other income in the same year. Note INCOME, not TAX. 

    You could, therefore, claim relief of £20000 resulting in a tax refund of £4000. 

    Additionally, you can carry forward the loss against future profits chargeable to Class 4 NIC. This is a point often missed by many. 
  • chilswelluk
    chilswelluk Posts: 164
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    edited 22 January at 2:51PM
    Taking into account what Dazed has said and you have prepared accounts on the accrual basis losses can be set against other income in the same year. Note INCOME, not TAX. 
    Thanks for your answer. What are the implications if accounts are prepared on a cash basis?

  • [Deleted User]
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    edited 22 January at 2:51PM
    Taking into account what Dazed has said and you have prepared accounts on the accrual basis losses can be set against other income in the same year. Note INCOME, not TAX. 
    Thanks for your answer. What are the implications if accounts are prepared on a cash basis?

    Restrictive. Losses made can only be set against profits from the same trade. Effectively they are carried forward to any profits made in following years.
  • Also, you are probably including NI in the £10k "tax" you claim was deducted.  Any loss you can offset won't change your NI.

    So the maximum tax refund would be limited to the income tax paid ~£6k??

    And then you need to factor in that the loss (if claimable) simply reduces your taxable income.  So instead of being taxed on £43k you would be taxed on £23k. 

    Meaning you still have a tax liability of ~£2k.  With ~£6k paid under PAYE that is a refund in the region of ~£4k.
  • BoGoF
    BoGoF Posts: 6,784
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    Going on how little the OP knows about the tax system I'd be very intrigued to see how this £20k 'loss' has been calculated. I can envisage a position where OP is claiming all household expenses against the B&B. I'd think HMRC would be equally interested.
  • Dazed_and_C0nfused
    Dazed_and_C0nfused Posts: 12,779
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    edited 24 December 2023 at 11:18AM
    BoGoF said:
    Going on how little the OP knows about the tax system I'd be very intrigued to see how this £20k 'loss' has been calculated. I can envisage a position where OP is claiming all household expenses against the B&B. I'd think HMRC would be equally interested.
    For losses of that size (with associated tax saving) I would hope the op is subject to a formal enquiry from HMRC, even if the end result is that it proves the expenses are legitimately claimed.

    Although I suspect you may be closer to the mark 😳
  • [Deleted User]
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    edited 24 December 2023 at 11:50AM
    Also, you are probably including NI in the £10k "tax" you claim was deducted.  Any loss you can offset won't change your NI.

    So the maximum tax refund would be limited to the income tax paid ~£6k??

    And then you need to factor in that the loss (if claimable) simply reduces your taxable income.  So instead of being taxed on £43k you would be taxed on £23k. 

    Meaning you still have a tax liability of ~£2k.  With ~£6k paid under PAYE that is a refund in the region of ~£4k.
    The other consideration that needs to be considered is the loss for Class 4 NIC purposes. While the loss could be set against PAYE as you state it is also able to be carry forward against future profits for Ni purposes only. In effect, the class 4 lower limit in increased by the loss in the following year. The reasoning is that one would only obtain tax relief if set against other income but would obtain both tax and Class 4 NiC relief if carried forward against future trading profits. 

    This is often missed or unknown.
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