Sole trader startup losses and PAYE income in same year

Sole trader startup losses and PAYE income in...

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In the 2014/2015 tax year, I had employed earnings at 40% tax rate until end of July when I was made redundant. Then 12 weeks contract earnings with some strange PAYE adjustments as a result!

Then...... I bought into a bookkeeping franchise. My full year accounts will run from April to March every year and I am trading as a sole trader.

My first "year"  ran from 1/12/14 to 31/3/15. I incurred a lot of start up and training costs so my P&L account for this first period of trading will have no income yet and a lot of expenses, so I have some trading losses for 2014/2015 that I believe I can set against my earned income when I do my SA return.

I was a CIMA accountant in industry before becoming a bookkeeping franchisee, but my tax knowledge is pretty basic as I haven't needed it over the years.

I want to check the following:

That first trading period is only 4 months long. Can I take the losses in those first few months from Dec 14 to Mar 15 and set them against my earned income earlier in 2014/2015 via the self assessment return, and claim back some of the tax I previously paid? - or are there rules about assessment periods, or years less than 12 months, that will preclude me from doing that until a future year?

The reason I'm not sure is because a) it's such a short accounting period with heavy startup expenses and b) I didn't have any income in that time (just got 1st client, woohoo) and from surfing the net, it seems there might be a need to prove it's a bone fide business that will bring in income?

Basically, I would REALLY like to get my tax return in as early as possible because if I can reclaim any tax I've previously paid, it will help keep me going while I build up a number of clients.

Replies (5)

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By possep
30th Mar 2015 14:31

I am not confident that all the start up and training costs will be allowable. You have not provided enough information to confirm this. If you are carrying out bookkeeping services I think you should study and understand the basis of assessment rules and allowable expenses before offering your services.

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Johny Fartpants Picture
By johnny fartpants
30th Mar 2015 14:49

Yes you can offset sole trader losses against current year PAYE income (or prior year's income if you prefer). It does not matter that the accounting period is short. Presumably possep is referring to the fact that you may not be able to count training costs as a business expense if these are for a new skill and therefore deemed to be capital in nature. Hope his helps.

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By Tilly58
30th Mar 2015 15:14

Hi,

Thanks for the advice re the length of the accounting period, Johnny fartpants. Wonderful name :)

yes, the training costs are not for a new skill, are not capital in nature, are allowable and have been duly set against the correct codes.

The start-up costs are a mix of capital and expense as you might expect, and have also been charged to the appropriate codes :)

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By HouseACA
30th Mar 2015 23:21

Hi, may I hijack this thread please? It kind of relates to one I asked previously and reminded me of something I forgot about.

 

If the OP had been employed during the year, but instead because of low earnings paid no income tax, and then went self employed and made a first year loss. Must that loss be offset against that years employed earnings, or can it be offset against prior years?

 

A few figures, to help by way of example; say an individual earned £5,000 employed income but paid no PAYE on this, then was made redundant and went self employed later in tax year and incurred a first year taxable loss of £2000, can that  £2000 loss be offset against a prior year employed income where tax had been paid or must it be used to make that current year income £3000 and effectively be lost?

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Replying to Self-Employed and Happy:
By Bungo
31st Mar 2015 06:57

Already answered

HouseACA wrote:

Hi, may I hijack this thread please? It kind of relates to one I asked previously and reminded me of something I forgot about.

 

If the OP had been employed during the year, but instead because of low earnings paid no income tax, and then went self employed and made a first year loss. Must that loss be offset against that years employed earnings, or can it be offset against prior years?

 

A few figures, to help by way of example; say an individual earned £5,000 employed income but paid no PAYE on this, then was made redundant and went self employed later in tax year and incurred a first year taxable loss of £2000, can that  £2000 loss be offset against a prior year employed income where tax had been paid or must it be used to make that current year income £3000 and effectively be lost?

Somebody covered this already, it can be used against the same or previous year.

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