New Business Self Empl Losses Against Other Salary

Jane2132

Hi, first time here was looking for a bit of advice, I would love some help but contacting an accountant will eat further into my losses and make things even worse so any help gratefully received.

I work full time for a company and have also at the same time just set up as a sole trader as well in my spare time. This spare time sole trader activity takes the form of buying and selling goods. On paper the new business venture is currently making a loss i.e. Turnover-(Capital Costs for Stock + Expenses) is negative but actually it seem to me that it makes a profit !

For instance for the part time self employed work means lots of driving to look at / view / pick-up stock etc, these are long journeys and when worked out at 40p per mile and deducted from the profit this turns the profit negative (even though I am able to sell the majority of goods at slightly more than I paid for them). I personally do not think the car costs me 40p per mile as I service it etc myself but these 40p's make the business negative on paper but positive in real if that makes sense.

Due to me getting more business savy, I would have thought that in the future when I can devote more time to the part time job and do the research I will make more profits and turn this small business around (1) How long will the TAX Man allow me to make a loss on paper and can they insist I close down the business if I continue to make a loss. I enjoy this other business activtity and hope to one day shift more towards being self empl rather than working for someone else as I currently do. Obviously this is years off yet.

(2) I am still working full time as well for another company and pay tax as normal for that but I believe on my short tax return as my turnover is far less than 15k I can offset the losses for my part time business against the tax paid for my normal day job, is this correct

MJSW

I personally do not think the car costs me 40p per mile as I service it etc myself but these 40p's make the business negative on paper but positive in real if that makes sense.

I see where you're coming from, but don't forget that the 40p also covers the loss in value of your car too. Whilst you may not be paying out the equivilent of 40p per mile in cash terms on things like petrol and repairs, the more mileage you put on your car the less it will be worth and the sooner it will wear out and you'll need to buy a new one.

1) There's no specific time limit in which you have to make a profit (unless you are a farmer). However you can only claim losses if the business is genuinely carried out in order to try and make a profit, and not for example when it is really a hobby rather than a business. Just because you have made a loss this year shouldn't really be a problem as long as you were trying to make a profit. Many businesses lose money in the first few years, so it won't be anything unsual as far as the Inland Revenue are concerned.

2) Yes, that is correct (although it doesn't depend on turnover being less than £15,000, you can do it no matter what the turnover is).

You have three options. You can offset the loss against income in either the same tax year as the loss, the previous tax year, or the tax year 3 years earlier. Which is best will depend on which tax band you were in each of those years.

Jane2132

Thanks for the information

StratApproach

Interesting subject.... not trying to steal your thread but just asking a question based on he same subject, if i may please.

Basically...
3 years ago was a 40% tax payer on PAYE. So paid a pretty penny in tax.

Now: Self-employed in since June (declared with IR), not earning a lot (so basic tax is what it will be this year) but would like to offset as much tax as possible to give me better income - the honest way!

I get the impression that anything bought in this tax year 'could' be written against my three year ago tax bill? Which at 40% is much better than 20%. ie. laptop, mobile etc.

Have seen an account but he didn't mention anything about this.

So I've been working on this basis until tax bill....

Each month I'm working on this basis.. Keep £500 (£100 due to claimable expenses) rest take 70% other 30% put aside for tax man.

Cheers Deaks

MJSW

I get the impression that anything bought in this tax year 'could' be written against my three year ago tax bill.

Not quite! If the whole business makes a loss during its first 4 years, then you can carry that loss back 3 years. But you can't decide to claim individual expenses incurred in the current year against the income 3 years ago instead of the current year. Expenses have to offset against income in the year to which they relate. If that calculation results in a loss, then you can carry that loss backwards.

It sounds as if you are currently making a profit, so you won't be able to offset anything against earlier years.

ie. laptop, mobile etc.

You won't be able to claim the full cost of capital equipment like laptops and mobiles either, even in the current year. You will have to claim Capital Allowances, which spread the relief over several years. There used to be a 100% first year allowance for computer equipment purchased by small businesses until 31 March 2004, but it has now been reduced to only 50%. Each year after that you get 25% of what's left, eg, buy a computer for £1000 in the first year, you get tax relief on £500, leaving £500 unrelieved. In year 2 you get 25% of £500 ie £125, leaving £375 to carry forward. In year 3 you get 25% of £375 etc, etc.