If a client has a part time self employment doing illustrations but makes no income in the year.
Can these losses be carried forward to be offset against future years.
The comercial status has been met for sideways relief.
But I am unsure if the losses can be carried forward against profits of the same trade.
The costs were materials and exhibition costs, so all incurred to try and realise profits.
Does anyone have any previous experience with this type of client and HMRC. Would they consider this a hobby trade?
Replies (3)
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No probs
You could theoretically have an argument on your hands if you went for sideways relief. You say that the commerciality test is satisfied, and you may well be right, but there is no escaping that it is always a potentially arguable point. But there is no such test in carrying forward losses.
Yes, a loss has to be one incurred in the pursuit of a trade, profession or vocation, in order to be eligible for recognition in any form, but the proverbial coin will land on its edge before you run into a problem in practice where the loss is carried forward.
In order to derive any benefit whatsoever from a carried forward loss, that activity has to generate a profit in a future year. At that point, HMRC will be really on the back foot if they seek to argue that it was not being conducted as a trading activity earlier.
With kind regards
Clint Westwood.
Carry forward no problem
Carried forward losses can only be offset against profits of the same trade. It there is a trade, then the losses can be forward against it. If there isn't a trade then, then the future profits aren't taxable anyway (as incidental surpluses from a hobby)
At most the risk is that HMRC argue a hobby (when losses were made) turned into a trade (when profits are made later). If your client continues doing the same thing throughout I really can't see HMRC succeeding with that argument.