Working PAYE and self employed - tax offset allowable expenses question

chilswelluk

Dazed_and_C0nfused said:

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.

Sorry I did include NI in the figure.  What you say makes sense, thank you for clarifying.

chilswelluk

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.

It is legitimate to claim for all repairs associated with the business.  Guests rooms had to undergo extensive repairs.  Realistically I don't envisage making a profit for some time.  Next year I want to replace a barn roof which is used exclusively as a garage for guests.  I will also look at any other legitimate tax relief such as getting solar panels.  Plant and farm machinery also has favorable rates, so may look at getting a small tractor / other farm machinery to develop the gardens for guests use (I have 15 acres). Future years may very well incur greater loses than 20k.  Anything I claim for guests, will not be for my own personal use.

Secondly, I can claim nearly all household expenses, as nearly all household expenses are attributable to the B&B and not my own personal living.  I live in a very small annex.  The rest of the property is solely for the B&B.

BoGoF

Suggest you have a look at what HMRC class as a commercial business 'with a view to making a profit'. You just have a cash cow there generating losses to claim against PAYE. You are lining yourself up for an enquiry by HMRC.

chilswelluk

BoGoF said:

Suggest you have a look at what HMRC class as a commercial business 'with a view to making a profit'. You just have a cash cow there generating losses to claim against PAYE. You are lining yourself up for an enquiry by HMRC.

Many businesses take years to make a profit. It not unusual for a business to make a loss in its first or second year of trading.  I addition, many businesses make a loss because of bad management.  It does not mean they fall foul of the tax system.  I have been reading some case law regarding a horse breeder who tried to claim tax relief and the court held that it was not a commercial business but a hobby.  The same cannot be said about my business.  As long as I write a business plan in the right way and demonstrate a view to making a profit, it should provide some cover. 

[Deleted User]

chilswelluk said:

BoGoF said:

Suggest you have a look at what HMRC class as a commercial business 'with a view to making a profit'. You just have a cash cow there generating losses to claim against PAYE. You are lining yourself up for an enquiry by HMRC.

Many businesses take years to make a profit. It not unusual for a business to make a loss in its first or second year of trading.  I addition, many businesses make a loss because of bad management.  It does not mean they fall foul of the tax system.  I have been reading some case law regarding a horse breeder who tried to claim tax relief and the court held that it was not a commercial business but a hobby.  The same cannot be said about my business.  As long as I write a business plan in the right way and demonstrate a view to making a profit, it should provide some cover. 

You need to be careful - HMRC will almost certainly challenge ongoing losses, particularly when set against other income. 

Let’s look at the scenario where you are no longer able to sustain such losses in, say, three years time. You decide to cease trading. Among other improvements you have now developed the gardens and generally improved the property, no doubt adding value, while obtaining tax relief throughout. 

In short you now own a property which has benefitted from upgrading at the taxpayers’ expense. I am not suggesting for one moment that that is your intention but you can understand how some, including HMRC, may view it. 

I had a similar case with a client some ten years ago which lasted almost two years - only commencing after the trade ceased. We came to a deal - not the desired outcome but that’s the risk! Be prepared for requests to view all business and personal banking records. 

Are you best placed to negotiate with HMRC on your own? I would strongly seek professional advice.

BoGoF

chilswelluk said:

BoGoF said:

Suggest you have a look at what HMRC class as a commercial business 'with a view to making a profit'. You just have a cash cow there generating losses to claim against PAYE. You are lining yourself up for an enquiry by HMRC.

 As long as I write a business plan in the right way and demonstrate a view to making a profit, it should provide some cover. 

Yeah ok then.

You are running a B&B not a farm and  what your intentions are is taking the proverbial. What is the current turnover of the B&B?

Seriously, get yourself some professional advice. Reading some case law does not make you an expert.

chilswelluk

You are running a B&B not a farm and  what your intentions are is taking the proverbial. What is the current turnover of the B&B?

Does that really matter?  Many farms actually run B&B.  A business can do more than one thing.  Agricultural equipment has decent tax relief.  Aside from my idea of developing the gardens for the B&B, I could use a tractor and baler to sell bales to horse owners.  Yes it would take many years to make a profit, but the reality is that one day I would make a profit.  On the topic of farming, it's not unusual to make a loss, just listen to farmers on the news!

The turnover for this year for the B&B was around 25k.

[Deleted User]

I echo that proper accountancy and tax advice would be in your best interest now so you get the tax position correct from the start and going forward rather than having to obtain advice later if, or more likely, when HMRC make enquiries in the future.

From what you have said so far there are question marks over a number of issues particularly as you are living in an annexe to the B&B and introducing other types of income.

Without going into specific items of do you understand what is capital as opposed to revenue expenditure, expenditure which is wholly and exclusively for the purposes of the trade, duality of purpose and quantifiable private expenditure?

Are your business records detailed enough to meet the standard the legislation requires?

A carefully crafted business plan is all well and good but what happens in reality will determine the correct tax treatment.

[Deleted User]

[Deleted User] said:

I echo that proper accountancy and tax advice would be in your best interest now so you get the tax position correct from the start and going forward rather than having to obtain advice later if, or more likely, when HMRC make enquiries in the future.

From what you have said so far there are question marks over a number of issues particularly as you are living in an annexe to the B&B and introducing other types of income.

Without going into specific items of do you understand what is capital as opposed to revenue expenditure, expenditure which is wholly and exclusively for the purposes of the trade, duality of purpose and quantifiable private expenditure?

Are your business records detailed enough to meet the standard the legislation requires?

A carefully crafted business plan is all well and good but what happens in reality will determine the correct tax treatment.

Good advice. It would be my view that the business is open to challenge by HMRC - as had been said by myself and others. Unfortunately there are times on the forum where those who seek advice subsequently spend more time challenging that advice when it is not what they would prefer to hear. 

chilswelluk

Curiousguy said:
From what you have said so far there are question marks over a number of issues particularly as you are living in an annexe to the B&B.

Out of interest why do you think the annex is an issue?  Would it be less of an issue if I moved into my partners house?  Surely it would be more of an issue if I was living in the B&B itself, like many owners do and not in an annex . The non annex part of the property is solely for the B&B.  As this is solely for the B&B and not my use, I don't see why I can't claim repairs, energy costs, mortgage interest all attributable to this part of the property.  The reality is it is not being used for my personal living, but solely for the business.