offset of self employed losses against employment income
Discussion
Why should they - the legislation is there PRECISELY to allow it.
However, they can challenge the validity of a trading loss - often on the basis that the loss has been incurred because the activity being claimed as trading is, in fact, a hobby. A hobby, by definition, is not pursued to generate profits and more normally will cost the hobbyist instead.
I had them try this on with one of my clients. They failed in their efforts.
However, they can challenge the validity of a trading loss - often on the basis that the loss has been incurred because the activity being claimed as trading is, in fact, a hobby. A hobby, by definition, is not pursued to generate profits and more normally will cost the hobbyist instead.
I had them try this on with one of my clients. They failed in their efforts.
If you are genuinely trading but making losses, the tax rules allow you to offset the losses against other income earned in the same tax year the losses are incurred. The key is that the trading must be genuine. The Revenue can argue that a persistently loss making operation is not a genuine trade - and they might have a point depending on the individual circumstances of each case. However, the tax definition of trading does not insist that the business HAS to always make profits. In fact, the definition of a trade is that is is "an activity pursued WITH A VIEW to making a profit". If it fails to make a profit it can still be a trade.
Of course, the losses must also be calculated in a manner consistent with Standard Accounting techniques and taking heed of specific tax regulations regarding allowances claimable on fixed assets etc.
If all or some of the losses cannot be utilised in this way, the unused losses can be carried forward to future years but once that is done, they can only be offset against profits from the same trade.
Of course, the losses must also be calculated in a manner consistent with Standard Accounting techniques and taking heed of specific tax regulations regarding allowances claimable on fixed assets etc.
If all or some of the losses cannot be utilised in this way, the unused losses can be carried forward to future years but once that is done, they can only be offset against profits from the same trade.
A firm (accountants) I used to work for had a guy qapproach who (crown green) bowled as a hobby. He'd had a particularly good year and had won a little prize money and a brand new car. The Revenue had contacted him and, despite our objections, were adamant he was a professional sportsman and that his "earnings" were taxable.
He didn't have such a good year again, and now claims tax relief on all the costs of his hobby (travel, equipment, hotels etc) year on year, always now making a loss and claiming a tax refund against his PAYE earnings!
The best bit is that he never actually paid any tax over, as by the time we had argued he'd had 2 more yesrs of losses which cancelled out his good year!
He didn't have such a good year again, and now claims tax relief on all the costs of his hobby (travel, equipment, hotels etc) year on year, always now making a loss and claiming a tax refund against his PAYE earnings!
The best bit is that he never actually paid any tax over, as by the time we had argued he'd had 2 more yesrs of losses which cancelled out his good year!
Edited by smartie on Wednesday 5th November 09:24
Deva Link said:
Is there any way losses on renting out a property can be offset against PAYE?
That would significantly help my daughter who is renting out a property for £200/mth less than the mortgage.
no, they can only be offset against other rental income earnings, though they can be carried forward to be used in the future.That would significantly help my daughter who is renting out a property for £200/mth less than the mortgage.
Officially, the "Schedules" were abolished a few years ago. However, in reality, they weren't and the tax differentiation between the treatments of various types of incomes and losses based on how the money was generated still exists.
This is the fundamental reason why UK tax is so complicated.
This is the fundamental reason why UK tax is so complicated.
Seany88 said:
Eric Mc said:
Rental losses aren't "trading" losses and are therefore treated differently for tax purposes.
For how many years can the loss be carried forward for? Will HMRC think it suspicious if a continual loss is made? HMRC MAY become suspicious if theenterprise NEVER seems to make a profit.
Can anybody tel me if I can choose NOT to use my loss(in 2006-2007 for example) t offset against profit in the year after (2007-2008)? But then use it to offset the loss in the FOLLOWING year instead (next year2008-2009).
I don't want to use it to offset THIS tax year, because my income islaready below the threshold for Tax, so I don't pay tax on it anyway! So no point! (But it will proably be useful formy tax returnnext year).
Am I allowed to sue it next year instead even if I chose not to use it this year?
Much appreciation - the HMRC websiet doesn't seem to make this clear! Am confused!!! A
I don't want to use it to offset THIS tax year, because my income islaready below the threshold for Tax, so I don't pay tax on it anyway! So no point! (But it will proably be useful formy tax returnnext year).
Am I allowed to sue it next year instead even if I chose not to use it this year?
Much appreciation - the HMRC websiet doesn't seem to make this clear! Am confused!!! A
You ABSOLUTELY have the choice. There is no compulsion to offset trading losses against other income in the same tax year. You are perfectly entitled to carry the losses forward to future years for as long as you want. This is a basic tennet of tax planning and is well worth considering in order to prevent the wastage of tax allowances and capital allowances or obtaining tax relief at better rates of tax in future years.
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