Offsetting profits/losses - tax
Discussion
Hope someone can help here, tax is a bit of a minefield.
I'm a self-employed postmaster, and at the end of March will be getting a lump sum payment from Post Office Ltd to terminate my contract (long story - government cuts etc etc). This lump sum (a redundancy payment in a way) will be low six figures, and therefore push me well into the 40% tax bracket.
In the next financial year, I will be starting a new business in the post office building, using the proceeds. A large proportion of the lump sum will be spent on doing up the office etc, to the extent that I fully expect to make a loss in 2017/18 due to the startup costs.
Can I do anything to offset this later expenditure, to reduce my tax liability for 2016/17? I'd like to avoid paying 40% tax if possible - and if I do, can I get it back due to making a loss the following year?
I'm a self-employed postmaster, and at the end of March will be getting a lump sum payment from Post Office Ltd to terminate my contract (long story - government cuts etc etc). This lump sum (a redundancy payment in a way) will be low six figures, and therefore push me well into the 40% tax bracket.
In the next financial year, I will be starting a new business in the post office building, using the proceeds. A large proportion of the lump sum will be spent on doing up the office etc, to the extent that I fully expect to make a loss in 2017/18 due to the startup costs.
Can I do anything to offset this later expenditure, to reduce my tax liability for 2016/17? I'd like to avoid paying 40% tax if possible - and if I do, can I get it back due to making a loss the following year?
Have you sought advice from the NFSP? Do you currently operate another retail trade or business alongside the post office? Is your current remuneration from POL assessed as part of your trading income or as employment income under the statutory basis of assessment?
The termination payment from POL will be assessed as part of your employment income regardless of whether your current remuneration is assessed within trading income. However, the first £30,000 will be exempt from tax.
https://www.gov.uk/hmrc-internal-manuals/employmen...
There is an early trade loss relief available that allows losses in the first 4 years of trading to be carried back and set against any income from the 3 previous tax years. However, this would only be available if HMRC accepted that the new business is within the first 4 years of trading and not a continuance of an existing trade.
More likely you would be looking at Trade loss relief against general income which allows you to carry back trade losses against other income and capital gains in the previous tax year.
Either relief would allow you to subsequently claim a tax refund on the termination payment in this tax year.
https://www.gov.uk/government/publications/losses-...
You mention that a large part of the cost would be doing up the premises. You'll need to ensure that the costs are of a revenue nature rather than non-deductible capital expenses. If the latter, they may not benefit from capital allowances if they relate to the building itself and therefore your taxable loss available to relieve this year's tax will be lower.
The termination payment from POL will be assessed as part of your employment income regardless of whether your current remuneration is assessed within trading income. However, the first £30,000 will be exempt from tax.
https://www.gov.uk/hmrc-internal-manuals/employmen...
There is an early trade loss relief available that allows losses in the first 4 years of trading to be carried back and set against any income from the 3 previous tax years. However, this would only be available if HMRC accepted that the new business is within the first 4 years of trading and not a continuance of an existing trade.
More likely you would be looking at Trade loss relief against general income which allows you to carry back trade losses against other income and capital gains in the previous tax year.
Either relief would allow you to subsequently claim a tax refund on the termination payment in this tax year.
https://www.gov.uk/government/publications/losses-...
You mention that a large part of the cost would be doing up the premises. You'll need to ensure that the costs are of a revenue nature rather than non-deductible capital expenses. If the latter, they may not benefit from capital allowances if they relate to the building itself and therefore your taxable loss available to relieve this year's tax will be lower.
mon the fish said:
Hope someone can help here, tax is a bit of a minefield.
I'm a self-employed postmaster, and at the end of March will be getting a lump sum payment from Post Office Ltd to terminate my contract (long story - government cuts etc etc). This lump sum (a redundancy payment in a way) will be low six figures, and therefore push me well into the 40% tax bracket.
In the next financial year, I will be starting a new business in the post office building, using the proceeds. A large proportion of the lump sum will be spent on doing up the office etc, to the extent that I fully expect to make a loss in 2017/18 due to the startup costs.
Can I do anything to offset this later expenditure, to reduce my tax liability for 2016/17? I'd like to avoid paying 40% tax if possible - and if I do, can I get it back due to making a loss the following year?
If you incur trading losses, you can do a number of things with those losses.I'm a self-employed postmaster, and at the end of March will be getting a lump sum payment from Post Office Ltd to terminate my contract (long story - government cuts etc etc). This lump sum (a redundancy payment in a way) will be low six figures, and therefore push me well into the 40% tax bracket.
In the next financial year, I will be starting a new business in the post office building, using the proceeds. A large proportion of the lump sum will be spent on doing up the office etc, to the extent that I fully expect to make a loss in 2017/18 due to the startup costs.
Can I do anything to offset this later expenditure, to reduce my tax liability for 2016/17? I'd like to avoid paying 40% tax if possible - and if I do, can I get it back due to making a loss the following year?
In the TAX YEAR in which the trading loss occurred, the loss can be offset against OTHER TAXABLE INCOME. This is very useful at getting tax refunds on tax you have already paid (PAYE on salary, for instance).
If you do not use this particular loss relief, the trading loss can only be carried forward against future trading profits FROM THE SAME TRADE.
There is no guarantee that all of the extra expenditure you incur in setting up the new business will be offsetable against the new business income i.e. it may not generate the large loss you are expecting.
Whether these costs can be used to create a loss or augment a loss will depend on the nature of these costs.
Some will simply be disallowable.
Some will be allowable.
And some will be disallowable as normal business costs but WILL be allowable as a Capital Allowances.
Capital Allowances vary depending on the nature of the capital cost. Some can be claimed at up to 100%. Some is claimable at 18% and some as little as 8%.
You need to speak to an accountant.
Thanks for the replies guys, much appreciated.
To answer most of the questions - I'm 35 and yes, putting some of the money into my pension would be tax efficient. But I'm starting a bookkeeping business (still training), and so my plan is to have the money to renovate the shop (from Post Office into bookkeeping office), plus 18 months living costs set aside so I'm not desperate for money straight away. I'm erring on the side of keeping more aside than I think I'd need, which means not a lot to go into the pension; not enough to offset the tax anyway.
The NFSP don't help a lot when it comes to this - as tax isn't their forte, and it's after leaving the network where my issues start. My office is very small, with no other business attached (small stationery section apart). So me (currently) as a Postmaster in the building will become me as bookkeeper in the same building, once stripped out of the counter etc etc. So it is a new business, not a continuation of the old one - just in the same building. I won't be able to trade until I spend the money on the premises.
The reason I'm choosing to become a bookkeeper is that my bookkeeper 2 doors down is retiring, and he's still pretty busy. So the work is out there, and the premises I have are mine so I might as well use them for something (they are linked to my house).
I was thinking I would need to speak to an accountant, thought I'd try the PH fountain of knowledge first though!
To answer most of the questions - I'm 35 and yes, putting some of the money into my pension would be tax efficient. But I'm starting a bookkeeping business (still training), and so my plan is to have the money to renovate the shop (from Post Office into bookkeeping office), plus 18 months living costs set aside so I'm not desperate for money straight away. I'm erring on the side of keeping more aside than I think I'd need, which means not a lot to go into the pension; not enough to offset the tax anyway.
The NFSP don't help a lot when it comes to this - as tax isn't their forte, and it's after leaving the network where my issues start. My office is very small, with no other business attached (small stationery section apart). So me (currently) as a Postmaster in the building will become me as bookkeeper in the same building, once stripped out of the counter etc etc. So it is a new business, not a continuation of the old one - just in the same building. I won't be able to trade until I spend the money on the premises.
The reason I'm choosing to become a bookkeeper is that my bookkeeper 2 doors down is retiring, and he's still pretty busy. So the work is out there, and the premises I have are mine so I might as well use them for something (they are linked to my house).
I was thinking I would need to speak to an accountant, thought I'd try the PH fountain of knowledge first though!
mon the fish said:
Hope someone can help here, tax is a bit of a minefield.
I'm a self-employed postmaster, and at the end of March will be getting a lump sum payment from Post Office Ltd to terminate my contract (long story - government cuts etc etc). This lump sum (a redundancy payment in a way) will be low six figures, and therefore push me well into the 40% tax bracket.
In the next financial year, I will be starting a new business in the post office building, using the proceeds. A large proportion of the lump sum will be spent on doing up the office etc, to the extent that I fully expect to make a loss in 2017/18 due to the startup costs.
Can I do anything to offset this later expenditure, to reduce my tax liability for 2016/17? I'd like to avoid paying 40% tax if possible - and if I do, can I get it back due to making a loss the following year?
Pm me, I've gone through this recently I'm a self-employed postmaster, and at the end of March will be getting a lump sum payment from Post Office Ltd to terminate my contract (long story - government cuts etc etc). This lump sum (a redundancy payment in a way) will be low six figures, and therefore push me well into the 40% tax bracket.
In the next financial year, I will be starting a new business in the post office building, using the proceeds. A large proportion of the lump sum will be spent on doing up the office etc, to the extent that I fully expect to make a loss in 2017/18 due to the startup costs.
Can I do anything to offset this later expenditure, to reduce my tax liability for 2016/17? I'd like to avoid paying 40% tax if possible - and if I do, can I get it back due to making a loss the following year?
Jockman said:
It won't just push you into the 40% bracket. It will push you into the 60% bracket too !!!
What 60% bracket?The additional rate band which kicks in at £150k is only 45%.
https://www.gov.uk/government/publications/tax-and...
Actual rates and effective rates can be quite different. Those who earn over £100,000 start losing their personal tax allowances, By the time their income reaches £122,000, all their personal allowances are gone. Even though the official tax rate they are paying on their top level income is 40/45%, the £22,000 between £100,000 and £122,000, is effectively taxed at over 60%.
And that's not taking National Insurance into account - which, after all, is another form of tax.
Numbers can be very misleading.
And that's not taking National Insurance into account - which, after all, is another form of tax.
Numbers can be very misleading.
Thanks for the replies guys, much appreciated.
To answer most of the questions - I'm 35 and yes, putting some of the money into my pension would be tax efficient. But I'm starting a bookkeeping business (still training), and so my plan is to have the money to renovate the shop (from Post Office into bookkeeping office), plus 18 months living costs set aside so I'm not desperate for money straight away. I'm erring on the side of keeping more aside than I think I'd need, which means not a lot to go into the pension; not enough to offset the tax anyway.
The NFSP don't help a lot when it comes to this - as tax isn't their forte, and it's after leaving the network where my issues start. My office is very small, with no other business attached (small stationery section apart). So me (currently) as a Postmaster in the building will become me as bookkeeper in the same building, once stripped out of the counter etc etc. So it is a new business, not a continuation of the old one - just in the same building. I won't be able to trade until I spend the money on the premises.
The reason I'm choosing to become a bookkeeper is that my bookkeeper 2 doors down is retiring, and he's still pretty busy. So the work is out there, and the premises I have are mine so I might as well use them for something (they are linked to my house).
I was thinking I would need to speak to an accountant, thought I'd try the PH fountain of knowledge first though!
To answer most of the questions - I'm 35 and yes, putting some of the money into my pension would be tax efficient. But I'm starting a bookkeeping business (still training), and so my plan is to have the money to renovate the shop (from Post Office into bookkeeping office), plus 18 months living costs set aside so I'm not desperate for money straight away. I'm erring on the side of keeping more aside than I think I'd need, which means not a lot to go into the pension; not enough to offset the tax anyway.
The NFSP don't help a lot when it comes to this - as tax isn't their forte, and it's after leaving the network where my issues start. My office is very small, with no other business attached (small stationery section apart). So me (currently) as a Postmaster in the building will become me as bookkeeper in the same building, once stripped out of the counter etc etc. So it is a new business, not a continuation of the old one - just in the same building. I won't be able to trade until I spend the money on the premises.
The reason I'm choosing to become a bookkeeper is that my bookkeeper 2 doors down is retiring, and he's still pretty busy. So the work is out there, and the premises I have are mine so I might as well use them for something (they are linked to my house).
I was thinking I would need to speak to an accountant, thought I'd try the PH fountain of knowledge first though!
Thanks for the replies guys, much appreciated.
To answer most of the questions - I'm 35 and yes, putting some of the money into my pension would be tax efficient. But I'm starting a bookkeeping business (still training), and so my plan is to have the money to renovate the shop (from Post Office into bookkeeping office), plus 18 months living costs set aside so I'm not desperate for money straight away. I'm erring on the side of keeping more aside than I think I'd need, which means not a lot to go into the pension; not enough to offset the tax anyway.
The NFSP don't help a lot when it comes to this - as tax isn't their forte, and it's after leaving the network where my issues start. My office is very small, with no other business attached (small stationery section apart). So me (currently) as a Postmaster in the building will become me as bookkeeper in the same building, once stripped out of the counter etc etc. So it is a new business, not a continuation of the old one - just in the same building. I won't be able to trade until I spend the money on the premises.
The reason I'm choosing to become a bookkeeper is that my bookkeeper 2 doors down is retiring, and he's still pretty busy. So the work is out there, and the premises I have are mine so I might as well use them for something (they are linked to my house).
I was thinking I would need to speak to an accountant, thought I'd try the PH fountain of knowledge first though!
To answer most of the questions - I'm 35 and yes, putting some of the money into my pension would be tax efficient. But I'm starting a bookkeeping business (still training), and so my plan is to have the money to renovate the shop (from Post Office into bookkeeping office), plus 18 months living costs set aside so I'm not desperate for money straight away. I'm erring on the side of keeping more aside than I think I'd need, which means not a lot to go into the pension; not enough to offset the tax anyway.
The NFSP don't help a lot when it comes to this - as tax isn't their forte, and it's after leaving the network where my issues start. My office is very small, with no other business attached (small stationery section apart). So me (currently) as a Postmaster in the building will become me as bookkeeper in the same building, once stripped out of the counter etc etc. So it is a new business, not a continuation of the old one - just in the same building. I won't be able to trade until I spend the money on the premises.
The reason I'm choosing to become a bookkeeper is that my bookkeeper 2 doors down is retiring, and he's still pretty busy. So the work is out there, and the premises I have are mine so I might as well use them for something (they are linked to my house).
I was thinking I would need to speak to an accountant, thought I'd try the PH fountain of knowledge first though!
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