Loss in First Year - What Box to fill in?

[andyc]

Hi

In my first year of trading which matches the tax year 04-05 (doesn't that make life simple) I made a loss of £5552.37.

When filling in the tax return I am a little confised as to where this figure goes...

3.85 - 3.88

Basically, by filling in one of these boxes (I think it should be 3.87) I assume that there is no 'refund' of tax paid. To add a little confuson I have paid £295.26 TAX in CIS vouchers for this year.

So basically, can I ge the CIS tax back and which box (if any) do I put my loss in?

Any help much appreciated!!!

Andy Croft

[deanshepherd]

Hi Andy

It depends what you want to do with the loss.

If you have other taxed income in the current year (such as employment) then you may want to set the loss against that income to obtain a refund, in which case you will use box 3.85.

If you have taxed income in earlier tax years you may wish to set the loss against those and get a tax refund, in which case you will use box 3.86. You will also have to state whether you are setting the losses against the previous tax year or going back further under special rules.

If you do not wish to claim loss relief but instead carry the losses forward to set against next years profit then you will use box 3.87.

If you had no other income for 04/05 then your CIS deductions will be refunded.

I would suggest getting an accountant to at least cast his professional eye over the figures before submitting them - could save you tax (and sleepless nights) in the long run.


Dean Shepherd
dean.shepherd@mmi-online.co.uk
MMI Accountancy
www.mmi-online.co.uk

[King_Maker]

I assume you reviewed how you can utilise this Loss?

Briefly, there are 4 options :

1. Carry forward against profits of the same trade.

2. Backwards against income of earlier years.

3. Sideways against other income of same tax year.

4. Against Capital Gains of current or previous year.


Option 2 can be used to generate a refund of tax where there has been a period of employment and PAYE deducted.

The HMRC Help Sheet IR227 gives information on Losses.

It is downloadable from their website.

http://www.hmrc.gov.uk/leaflets/menu.htm

Have you looked at the other posts which discuss the issues of 31 March/5 April accounting date?

IMHO, it is essential to review the choice of accounting date - I saved one client over £20,000 in tax by a better choice of accounting date from his one(admittedly, prior to the SA regime).

[King_Maker]

"I would suggest getting an accountant to at least cast his professional eye over the figures before submitting them - could save you tax (and sleepless nights) in the long run." - Dean Shepherd

Amen to that! :)

[andyc]

Thanks for all that.

I didn't find IR227 very helpful!

I think what looks best is to offset the loss against last years tax as an employee on PAYE as having just had a baby this money would be very useful at the moment and I am not sure that I expect next year to make anything much either as it's a slow process building up the business.

Thanks again

Andy

[King_Maker]

Yes, IR227 is not a great read!

Your mentioned a "baby".

First of all, Congratulations!

Secondly, as your wife may not have another job, did you remember to include any salary for her, if appropriate?

Thirdly, did you check that 31 March 2005 might be better than 5 April 2005, if there was any net income in those 5 days?

[andyc]

Hi King_Maker.

First... Thanks!!!

Second... She does not work for me and does not pay tax as she earns below the threshold. I don't think I can use her under these circumstances! Or can I?

Third... I have looked but I can't find anything that explains which would be better. I do find the lack of a decent search in the forums at real pain as the web search is rubbish! Perhaps you could point me to somewhere that does explain please.

Many thanks

Andy

[King_Maker]

As your wife already has a job, the potential tax savings are limited.

However, if she is (say) currently earning £3000, she has unutilised Personal Allowance of £1745 for 2004-05 (and £1895 for 2005-06).

If she performed administrative/secretarial services for your business which justified a salary of (say) £1500 p.a., this would be worth a £330 reduction in your tax bill with no increase in hers.

In respect of the accounting date of 31 March/5 April, all I was trying to show was that if you received (say) net income (i.e. sales less expenses) of £500 from 1 April 2005 to 5 April 2005, you could increase your Loss Relief claim by £500, by choosing 31 March 2005 as your Year End so that the £500 falls into the next accounting period. Naturally, this would not be advantageous if you thought it would be taxable at a higher rate than the Loss Relief was given.

[andyc]

Hi King_Maker.

Thanks for that info. Yes, I see what you mean and I will look at it in more details.

Again, many thanks for your help.

Andy :-)

[Germaine]

Hello - My husband is in a similar situation. I have just compiled our 1st sole trader tax return for 04/05 and we made a loss of £9000. He earned approx £2500 in his job before starting the business (in this tax year). Would we be best to offset the loss against this income or carry it over? Can we do both?