My client is an author and writes books that are published through a well known publishing house.
Before averaging, the Tax Comps are as follows:-
2009/10
- £7,500 Losses
- £1,000 Interest taxed at source
- £20,000 invested in EIS (relief available £4,000). However no income tax, therefore no tax relieved.
2010/11
- £50,000 Profits
- £1,000 Interest taxed at source
- No EIS investment
If I average the profits (£0 for 2009/10 and £50,000 for 2010/11) I get £25,000 for each year.
Question 1: Am I correct in assuming the loss still carries forward as before?
i.e 2010/11 taxable profits = £12,500 (£25,000 - £7,500)
or should they be offset against the 2009/10 average £12,500 (£25,000 - £7,500)
or have I completely missed the point about something?
Question 2: Can the EIS tax relief be applied against the resulting income tax for 2009/10?
My hunch is that it cannot as the averaging adjustment is not technically an amendment to the 2010 tax return, it's a special provision for the tax of trade profits. What are peoples thoughts?
If only client had told me before making he investment in Jan 2010, I would have told him to wait a few months!
Thanks for any thoughts, help, advice etc
C
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Legislation more helpful than hunches...
EISRelief is given as a deduction from tax liability - s158 ITA and s23 explain how the calculation works. How assessable income is arrived at isn't relevant.