Recently taken on a subpostmaster as client. Salary from PO taxed as employment income and accompanying trade as trading income. In 2010/11 (first year of trade) had a loss on trade of approx. £15K and this was carried forward by previous accountant instead of setting off against PO salary. There were also Fixed Asset additions of 10K in 2010/11 but no AIA or capital allowances claimed. On review I put in an overpayment relief claim for 2010/11 to claim AIA and to set increased loss of 25K against PO salary in 2010/11 but this has been denied as out of time by 31 January 2013. Claim for AIA also denied. So only option is to carry forward trading loss of £15k and claim capital allowances at WDA rate going forward. However as his PO salary is not treated as part of the trade, there will always be a trading loss and therefore no tax relief for the brought forward losses. Are there any other options available to obtain tax relief on these losses?
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You say that there is an accompanying trade
So why can't the salary be treated as trade income?
bkd is right
po salary is always part of trading income unless t/i is minimal. PAYE should issue an NT code so that only NIC is paid at source.
I suggest the overpayment relief claim is amended to increase profits and reduce employment income. Loss claims and capital allowances claims are excluded from this type of claim but if the profit had been correctly calculated I assume there would not have been a loss anyway?
That just means that the capital allowances will be claimed per annum going forward. No allowance lost in the long run
And at the very worst ...
... if HMRC continue to resist an overpayment relief claim, treating the salary as trading income going forward will hopefully generate profits to mop up the losses.
No request made
so you can amend your accounts. It isn't one of those choices like beneficial loans where either taxpayer or HMRC can choose to apply the statutory basis.
The salary will continue to be part of the trading profits which as BKD says will then be able to use any losses or capital allowances in the future. Indeed, there is nothing to stop you in the future requesting a code number so some tax is deducted. It just gets claimed as tax paid in the self employment pages instead of an employment page.
I am sure if you explain to him that if you do nothing he may never get the full tax relief he is entitled to as the loss may never be relievref he will be happy with your suggestions