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Where Taxpayers and Advisers Meet

Offsetting losses against full time earnings

Fotoman
Posts:22
Joined:Wed Aug 06, 2008 3:33 pm
Offsetting losses against full time earnings

Postby Fotoman » Mon Mar 23, 2009 9:37 pm

I work full time in a 'proper' job (PAYE) but I am slowly building up a business for when I take early retirement in a couple of years time.
I have been purchasing capital equipment over the past four years mostly with my own money and also with money I have earned from the part-time business.
Each year I have reported a loss on my self-assessment form, due entirely to the purchase of capital equipment. If I disregarded the capital purchases, I would have made a small profit.
I have now heard that I can offset those losses, in previoius years, against my full time income and would like to know how I would go about that.
Many thanks in anticipation.

TN
Posts:297
Joined:Wed Aug 06, 2008 4:09 pm

Re: Offsetting losses against full time earnings

Postby TN » Tue Mar 24, 2009 9:38 am

The purchase of capital equipment is not allowable against your profits. Instead you claim capital allowances on these amounts which can be used to reduce your profits. If this generates a loss you can offset it against your other income (provided your business is being carried on commercially with a view to a profit) or carry it forward.

You need to go through your accounts, identify the capital expenditure, identify the correct rate of capital allowance, and then calculate your taxable profit or loss. If it's a loss you normally make a claim on the tax return, so you may have to make amendments to previous years in order to obtain the repayment.

Let me know if you need any more guidance.

Fotoman
Posts:22
Joined:Wed Aug 06, 2008 3:33 pm

Re: Offsetting losses against full time earnings

Postby Fotoman » Thu Mar 26, 2009 3:26 pm

Thanks for that. Yes, I have used the allowances only, i.e. 25% and offsetting that against the income has resulted in a loss. There is not enough income at present to purchase the capital equipment, so I am buying it out of earnings from my 'proper' job at present.

TN
Posts:297
Joined:Wed Aug 06, 2008 4:09 pm

Re: Offsetting losses against full time earnings

Postby TN » Thu Mar 26, 2009 3:36 pm

OK. Presumably you've also looked at whether you are entitled to any first year allowances, or annual investment allowance on the capital expenditure, rather than just claiming the 25% WDA?

Fotoman
Posts:22
Joined:Wed Aug 06, 2008 3:33 pm

Re: Offsetting losses against full time earnings

Postby Fotoman » Sat Mar 28, 2009 5:27 pm

Yes, I always claim a first year allowance of 40%. On my self assessment form, I declare a loss on my part time earnings but would the Tax Office 'automatically' offset that against my full time earnings?


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