A couple of questions about losses and how they can be used in future years.
I know that losses carried forward can only be used against future profits of the same trade (as opposed to any income in the year of the loss).
How many years can you carry a loss for? And can you only use part of a loss and carry the rest forward again, if you only need part of it?
If you are not using a loss on the 04/05 return that was generated on the 03/04 return, but are carrying it over, do you have to enter it anywhere on the 04/05 return, or just bring it in in the future when required?
Thanks!
Jenni :o)
Jenni Frost
Related resources
Replies (4)
Please login or register to join the discussion.
Losses
Thank you David and Philip, that clarifies things :O)
Nice to understand something on a Monday for once!!!
Jenni
Scope for carrying back?
First off all, losses c/f (s385) must be offset against first available profits (as David says). These losses and offsets are entered on p3 of the self employment return (boxes 3.84 - 3.89).
But there may be another alternative. This appears to be a new business. In which case the owner may have been paying tax (PAYE?) previously. s381 allows losses in the first 4 years to be carried back against other income in immediate prior years.
The upshot of all this is that if trading profits are expected to grow slowly (as in your example) the owner will see little or no benefit from being able to carry the losses forward. But if they were a taxpayer in the previous year there may be an real recovery.
Re your examples
Profits of £4,000 will automatically absorb losses of £1,400 b/f - it would not be possible to 'disclaim' the £1,400 loss relief and carry it forward.
If year 2 profits were only £500 then yes losses of £900 would remain to automatically releive future profits.
If in year 2 there was other income you could elect to set off the trading loss arising in the same year, or carry it forward. The trading losses of £1,000 so far unused would continue to be available against future trading profits.
HTH
Losses
Thanks Derek, I think I understand... but at the same time you have just reminded me why I find losses so confusing!
So, for example, self employed profit/(loss):
Year 1: (1000)
Year 2: (400)
Year 3: 4000
The profit for year 3 automatically becomes £2,600? I can't opt to carry a £1400 loss forward?
If the profit for year 3 was only £500, would I then automatically get a loss of £900 to carry forward?
What if in year 2, PAYE income of £6,000 was received? Would I have to use the loss (of £400) against that or could I choose to carry forward? Would the £1000 still be carried forward?
One day I will understand all this and actually remember it all!!
Thanks
Jenni :o)