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Carry back Self-Employment loss

Can I carry back first year Self-Employment loss against earlier PAYE?

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Hi,

I have a client who has started trading as a Personal Trainer. He has bought all of the necessary equipment and made a loss in the first year of circa £7000. Previous to this, he was employed on a reasonable Salary but still only a Basic Rate taxpayer.

He started trading in July 2019 and has pre-trading expenses that I have included such as the purchase of £7000 worth of gym equipment that he uses in the course of his work. 

To carry back his loss, is it simply a case of filling in the necessary boxes on the Tax Return and calculating what 20% of his loss would be in order to claim back the correct amount of tax? This is not something i've previously done and don't want to fall fowl of HMRC. 

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By SXGuy
11th Aug 2020 14:04

Carry back the loss to what? Employment Income? No.

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Replying to SXGuy:
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By John R
11th Aug 2020 15:37

Why not?

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Replying to John R:
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By SXGuy
11th Aug 2020 16:37

Is that you asking why it can't or why I say it can't?

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Replying to SXGuy:
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By Tax Dragon
11th Aug 2020 16:51

SXGuy wrote:

Is that you asking why it can't or why I say it can't?

You've hooked me with that one... are the answers different?

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Replying to SXGuy:
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By phild1702
11th Aug 2020 16:10

Yes, Employment Income. I have read the HMRC guidance but was hoping for a bit more clarity really.

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By Tax Dragon
11th Aug 2020 14:19

Is buying equipment a pre-trading expense? Doesn't sound like the correct categorisation to me, so, sorry to say, but you might need to review your work so far.

If you still find that there is a loss, read HS227. In fact, read HS227 anyway, because if you don't know what it says, I humbly suggest that you should get yourself a job working for an accountant, rather than holding yourself out as already being one. (Learn the ropes before you jump in the ring.)

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Replying to Tax Dragon:
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By phild1702
11th Aug 2020 16:06

He bought the equipment in April 2019 and started trading in July 2019 - his Accounts are running from 1st April 2019 - 31st March 2020.

I 'jumped in the ring' a number of years ago and obviously circumstances present themselves each day that are unfamiliar, hence my question.

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Replying to phild1702:
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By Tax Dragon
11th Aug 2020 16:28

Read HS227.

If a carry-back claim is appropriate, it creates a freestanding tax credit, not entirely dissimilar to that discussed in this thread https://www.accountingweb.co.uk/any-answers/carrying-back-202021-losses, except you will be making the claim in the 19/20 return, not outside it.

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Hallerud at Easter
By DJKL
11th Aug 2020 14:26

Do also consider if he was employed between 6th April 2019 and July 2019 , his available personal allowances and whether the loss arising between July 2019 and 5th April 2020 has been properly computed/ apportioned.

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By graemeban123
11th Aug 2020 15:09

Have to ask if you have utilised the Capital Allowances on the equipment to their best advantage or are you wasting them and creating the loss?

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Replying to graemeban123:
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By phild1702
11th Aug 2020 16:08

This is another issue that I was contemplating. He had Employment Income in the year of circa £13,000 with circa £1000 tax deducted. In the previous year, it was closer to £30,000.

He has a loss, prior to Capital Allowances being used, of circa £2000.

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Replying to phild1702:
RLI
By lionofludesch
11th Aug 2020 16:41

Don't overlook your s64 2b relief.

Could be better than early years relief.

Consider all your options.

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RLI
By lionofludesch
11th Aug 2020 16:35

Yes - in the early years of trade you can carry the loss back three years on a FIFO basis. You can set it against general income (here, my learned colleague SXGuy and myself have differing views).

If the trading period crosses 5th April, you'll need to split the loss between the two years.

Consider restricting capital allowances so you don't waste them.

Don't forget your claim for Class 4 losses which you'll probably need to carry forward. Your Class 4 loss is a separate claim. You don't need to use it in the same way as your Income Tax loss.

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Replying to lionofludesch:
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By SXGuy
11th Aug 2020 17:03

Actually I may have jumped the gun a bit with saying no and prob should have asked more questions. I think the op should consider whether the business will continue to attract losses in future years as hmrc may take a dim view in carrying it back in that case.

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