Creators of Litery Averaging and interaction with EIS Claim

Creators of Litery Averaging and interaction...

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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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By kaff
31st Jul 2011 17:51

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.

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