Accounting Matters
with PKF FPM

Fergal McCormack

Question.

I started my own business last year, and have prepared my first set of accounts. Due to high start up costs and slow sales I have incurred a substantial loss. In previous years I was an employee and all my tax was deducted at source. Can I reclaim tax from HMRC or use this year’s losses against any of my other taxable income?

Answer.


There are various ways in which relief for trading losses may be claimed by sole traders. As your loss has arisen in your first year of business, you can carry the loss forward or set the loss against general income of the tax year in which loss was made. If you make a loss in future accounting periods it may also be possible to carry future losses back against profits you’ve made in prior years. A loss can be carried back against general income of the previous three tax years as well as against your trading profits in previous years and in some circumstances it is possible to offset the loss against a capital gain you’ve made in previous years.

The carry forward loss claim is the most straight forward way of obtaining relief for a loss. However, the loss can only be offset against profits of the same trade in future years. A disadvantage of utilising your tax losses in this manner is that there will be a considerable delay before you realise your tax saving and there is always a risk that the trade may cease before your carried forward losses are fully utilised. Earlier tax relief may be obtained by either setting the loss off against any other taxable income arising in the tax year in which the loss is incurred, or in the previous tax year.

Where a loss occurs in any of the first four years of a new sole trade, tax relief may be claimed by offsetting your loss against any other taxable income you received in previous tax years. This could result in a refund of PAYE tax you have paid in your previous employment.

There are time limits applicable to each loss relief claim so you do not have to make a loss relief election immediately. However if the loss is not utilised by a claim the loss is automatically carried forward by HM Revenue & Customs for offset against your future trading profits.

The advice above is specific to the facts surrounding the questions posed. Neither PKF-FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.

Email f.mccormack@pkffpm.com

The advice above is specific to the facts surrounding the questions posed.  Neither PKF-FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.

Why not have a look at some past insights provided by PKF FPM...

Succession Planning

New Disclosure Campaign Announced

National Insurance Changes

Sir John Parker Leadership Talk

Boost Productivity and Morale with Incentives

Real Time Information

Tax Free Cash Extraction

VAT Bad Debt Relief

Budget Overview and 10 Tax Tips

A new PAYE system is set to be unleashed next month. How will this impact my business?

I'm going to find it hard to pay my tax bill by 31st January

Can I reward my staff this Christmas without having to pay income tax and national insurance to the taxman?

Question: How can I improve my company's tax liabilities?

 

Meet the Partners:

UBS
Invest 
NI
ILM

Meet the Champions:

Helios
DCP
Being
Podiem
PKF FPM
danske
McKinty and Wright
JCDecaux
SSEI
Legacy Wealth
Dokoo Digital
Register 
Now
Contact Us


Privacy Statement
Cookies

The cookie settings on this website are set to ‘allow all cookies’ to give you the very best experience. If you continue without changing these settings, you consent to this – but if you want, you can change your settings at any time by changing the privacy settings of your browser.

Find out more about cookies >