Nonsensical tax regulations | AccountingWEB

Nonsensical tax regulations

I have come across this issue previously but not for a few years; this year it has raised its head once again.


Scenario is as follows: client has his own sole trader business and is a partner in another business with his wife.


The sole trader business is profitable in the tax year to 5th April 2011, the partnership has made a small loss; both are schedule D tax and there is no problem in offsetting the client's share of the partnership loss in the year against his sole trader profit before calculating tax.


However, the partnership also has prior year losses, yet despite being the same tax schedule, we cannot set off the brought forward losses against current year profits because in the words of HMRC “... they are not the same business ...”.


The brought forward losses can only be carried forward to be set off against future profits in the same business.


So why can losses from one business be set off against profits from another business in the same tax schedule in the same tax year, but brought forward losses from that same business not be allowed?


Can anyone explain the logic in this to me?


Regards, Paul

cathygrimmer's picture

Logic and tax!!

cathygrimmer | | Permalink

Because that's what the legislation says. Logic has nothing to do with it!



Marion Hayes's picture

not just profits

Marion Hayes | | Permalink

losses can be set against total income in the same or previous year.

Was there no other income in the previous year they could be set against?

Old Greying Accountant's picture

It's probably all to do with ...

Old Greying Acc... | | Permalink

... anti avoidance and buying losses etc!

As ever, cynical abuse of the system by the unscrupulous means the genuine lose out.

Old Greying Accountant's picture

That said

Old Greying Acc... | | Permalink

is there no scope for cross charging?

johnjenkins's picture

If the logic of taxation

johnjenkins | | Permalink

really is that bad then there is always a way around the problem. As OGA suggests if there were scope wherby management fees can be charged by the partnership to the sole trader business then that could help.

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