Losses/capital allowances

Its late and I just need a second opinion on this (what used to be simple) question.

A sole trader client has losses brought forward of around £7,000 and then makes a small profit before capital allowances of £1,000. He has a capital allowance pool brought forward of around £24,000 of which he could claim capital allowances of £4,800 this year.

Am I correct in thinking that if I disallow all the capital allowances then £1,000 of the loss will automatically utilised, otherwise I could use the capital allowances to wipe out the profit and therefore retain the loss. Either way what was covered by personal allowances anyway will be wasted.

Seeing as either losses or capital allowances will be wasted, is the best option to claim all the capital allowances available (£4,800) to increase the loss to carry forward so that a larger loss will be available to offset against next year plus further capital allowances for that year.

Higher profits are expected next year but what if £7,000 profits are made before capital allowances, then even higher losses will be wasted.

That being the case should I just use £1,000 of the losses and disallow the capital allowances this year to retain them to be used when most beneficial rather than converting them to losses and having to use them against the first available losses?

 

EDIT: I guess the answer is ... it depends what the future profits will be.

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Don't claim capital allowances

Euan MacLennan |
Euan MacLennan's picture