Self employed struggling with Tax

cantthinkofanickname

I am on a low pension too old for employment so do a bit of work on the side to top up my income (which is enough to pay basic tax on). So far I have run at a loss.

My question is about capital allowances. I have some equipment which cost me say £2000. I know I am allowed 25% allowance on my assets but also I think one should reduce the value each year. Does anyone know what this is and how these are calculated?

Also, what proportion of my last year loss can I allow for in the next year?

Maybe someone knows a website where all this is explained in simple terms.

Thanks.

Michael_T_H_Onion

If you've run at a loss, there won't be any income tax to pay in respect of your self employment, although as you alluded to, you can offset the loss against other income on which you pay tax.

There are a number of options for using the loss in the last three tax years, in the current tax year or in future tax years. You need to draw up accounts for your self employment to calculate your exact loss and then include capital allowances in your calculations (example below) and then complete a tax return to claim any loss.

Assets used in the business were, generally, subject to a 25% annual reducing balance writing down allowance. For the tax year that started in April 2008, the general writing down allowance is 20% reducing balance. There are different allowances for different types of asset but 20% is the most common annual writing down allowance as of April 2008.

For example, if your asset cost £100, you get a tax deductible expense (capital allowance) of £20 in the first year (£100 x 20%) and £16 in the second year (£80 x 20%) and so on, until the value has been reduced to zero.

Once you've calculated your loss, the tax deduction is claimed through your income tax return.

There is a wealth of information on HMRC's self assessment website:

www.hmrc.gov.uk/sa/

For the tax year ended in April 2008, you will need to file your tax return by 31 October 2008 if on paper or by 31 January 2009 if completed online.

Additionally, make sure you have notified HMRC that you are self employed (details of the form to complete are on HMRC's website).

Depending on the complexity of your self employment business you may wish to employ an accountant for advice on using tax losses or assistance with the paperwork.

Michael T H Onion

jimmo

Sorry but when you say you are on a low pension I would assume that you mean that your pension income on its own is insufficient to make you liable to pay tax.
Am I right or wrong?
If I am right then playing around with capital allowances is really wasting your time.
If I am wrong then there is the possibility of setting the losses from your business against your pension income to reduce your current tax but if you are making losses without capital allowances then there are all sorts of options open to you.
I am afraid the devil is in the details and what you feel comfortable with publishing.
The pure answer to your question on capital allowances, assuming no first year allowance is that you get 25% per year.
Purchase price £2,000
Year 1 capital allowance (25%) £500
Value carried forward £1,500
Year 2 capital allowance (25%) £375
Value carried forward £1,125
The secret is deciding how much to claim

pchelpman

As previous posts have highlighted losses are a complex issue ... how to calculate them, whether or not to do so, options for using losses (including getting refunds by carrying back losses in the early years of business) and so on.

If there are problems with affording professional help there are two main groups that can help you......

TaxAid > http://www.taxaid.org.uk/

LITRG > http://www.litrg.org.uk/help/pensioners.cfm

I have assisted with both. You should try one or the other for advice more specifically tailored to your needs.

Good luck.


PCH

cantthinkofanickname

Thanks to all so far that has cleared up some things but no doubt a long way to go.

"Sorry but when you say you are on a low pension I would assume that you mean that your pension income on its own is insufficient to make you liable to pay tax."

I do pay tax on my Pension but the income is only about £12K a year. I have a 16hour/month job with a school (employed) which is about £1K/year. The rest is by running a computer/website/scanning business part time where the income is around let's say £500/year and it's that which I am tackling. I have already traded for two years so this is the 3rd return I am working on. If I employ an accountant that will put my losses up by say £200 which I do not want to pay out for. I am registered for no NI contributions.

The computer eqmt. I use is what I am trying to value. I have a spreadsheet for this and trying to factor in the figures. I wonder if there is some open source accounting software around for tiny businesses?

I will follow up those references, thanks.