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What if self-employed income is NIL?

I actually feel really sill asking this but....

I friend of mine has been self-employed for a number of years, however, last year she took an employed job, and there was no self-employed income as she didn't have time.  She did however still incur self-employed expenses such as professional fees, her business telephone line and web domain costs.  She also worked from home 1 day a week (home as office allowance?)... It has always been her intnetion to continue being self-employed (although the employment was a permanent position I believe it was on a contract basis), so keeping these things in place was necessary.  Can she still enter these expenses on her SA tax return, even though her self-employed income is actually NIL for the year and so create a loss that can be offset against her other income? 

I think yes, but don't want to put it on her tax return if the answer is no!  I am thinking that zero income but self-employed expense would look a bit weird on the tax return, but that she should still be able to claim it...

I know some of you are probably reeling at how basic a question this is, but the text books don't seem to cover real life scenarios and anomalies!!

Many thanks for your thoughts....


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28th Jan 2013 21:19

It's a question of fact

Is she or is she not continuing in self-employment? Why were the professional fees incurred?

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28th Jan 2013 21:22

You can create a loss

As we see from many businesses their expenditure exceeds income and create a loss (negative profit).

So, as long as she was happy that she hadn't given up on the business, and was merely keeping it in limbo to pick up when an opportunity came along, then she can record a loss.

Losses from self employment can be set against other income, such as her salary, to get a tax refund, or can be carried back a year for the same thing or, if not, carried forward to set against profits from the same self employment in future years.

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28th Jan 2013 21:41

Thanks both...

Yes, the intention was definitely to continue her self-employment, and she has in fact done so this year (2012/13) as the employed contract ended, and she was only employed for this time because the organisation insisted on it.

So she was doing just as you say, Paul, keeping it in limbo... she was also providing consultancy to local charitable organisations on a voulntary basis during this time so the self-employed "business" was definitely still in operation, she just wasn't earning any money on a self-employed basis!

BKD - the professional fees are annual institute membership fees for her profession.

Many thanks both of you for taking the time to answer my somewhat basic question!  I've dealt with losses before, but never when there's actually no self-employed income!  Lol!





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28th Jan 2013 23:17

You can create a loss

I agree with Paul and Mathilda above, but I gave up on a similar argument with a tax inspector many years ago. The client traded for several months after his year end, no income but legitimate expenses eg rent telephone bank charges.. After about 6 months he gave up, could not afford to go on. The inspector decided there was no income so no work so the expenses were personal and not a business expense. It was not worth the effort to fight it, but I believe we are right. Any Inspectors or case study lawyers prepared to comment.

Your client who found work after a year is in a stronger position. I do recall reading years ago that if there is a whole trading year without self employed income then the revenue treats it as ceased, and you would then start afresh if work began again.

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28th Jan 2013 23:41

Some late night reading

It does depend on the facts but as long as things get going again, she should be OK.

Have a look at this link to HMRC manual BIM70565 and it's link to BIM70580.  In today's economic climate, many businesses have had to hang about & make do until something turns up.

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29th Jan 2013 06:58

Halfway house suggestion

The law does not recognise a status of "temporary cessation".  It is either continuing or a permanent cessation.  The motives of the taxpayer are of primary importance and in this case I would say that there is a continuation on the facts stated.  There is a potential for challenge, and motives can be difficult to test in an objective manner, but you may be able to sustain the argument that the recorded costs, which would not have been incurred if the intention were to cease, indicate continuation.

What you MIGHT decide to do is to carry the loss forward rather than try to sideways relieve it against other income.  That is very much less likely to be challenged (if challenge you fear), as sideways relief requires satisfaction of other tests beyond mere continuation, and on which the taxpayer is arguably more exposed.  At least that way if the business does pick up and become profitable, you will at least get relief for the losses at that time.

This option (to disclaim sideways relief in favour of c/fwd) tends to have a greater attraction when you have substantial b/fwd losses that you are particularly keen to preserve, while the potential for sideways relief is usually rather modest.

With kind regards

Clint Westwood

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