Hello
Has anybody experience of this before
Statement of facts:
Losses incurred (as a sole trader) in the first year which were development costs for an App.
The App is yet to go to market so no income yet.
For the year 31st March 2014 there was a loss which we set against current income to gain tax relief. Errr... putting aside the concepts of Pre-Trading etc, HMRC have come back saying the claim for loss relief was an inaccruracy in the return and therefore would be applying the deliberate carless penalty of up to 70%.
The sums involved are high (20k+).
Does anybody have any suggestions or expereinces fighting this? All new to me.
Thanks for any insights
Replies (4)
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Loss relief
To deal with this we do really need to know HMRC's ground for denying the loss relief which has led to the "inaccuracy" in the return.
Can you throw some more light on this?
I agree that we need to know the reason for HMRC's disagreement.
But I will hazard a guess that they are saying that the development costs are capital and therefore the accounts are wrong.
Possible alternate reason
Alternatively, the fact that the client was not in a position to sell anything in the year (as there was no app to sold) meant that the trade did not commence last year. Case law indicates trading starts when you have something to sell (be it goods or services) and you can't have a trading loss unless someone is trading. The earliest the trade could start is when the app was in a saleable condition. Even that is suspect if there was no way to actually sell it.
Incidentally, is the £20k plus the amount of loss claimed or the tax at stake?
"The App is yet to go to
"The App is yet to go to market so no income yet." If this really is the case then stepurham is right - You can't incur a trading loss until you start trading.