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Carrying forward self employment losses

Carrying forward self employment losses

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In 2012 / 2013 my partner made a loss on their self employment. We set part of this off against income she made from PAYE and carried the remainder forward. I seem to remember the worksheet for this section on self assessment online helped set this up for us. This year 2013 / 2014 there is also a small loss, which is not being set off against other income, so we'd like to carry this forward too. When filling in the worksheet for this section I've added it together with the figure from 2012 / 2013 for the 'Total loss to carry forward after all other set-offs including unused losses brought forward'. However I've just been reading the helpsheet on losses here:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/fil...

This says "You cannot claim only part of the loss", so does this mean she's not actually able to carry forward the remaining loss from 2012 / 2013 as we already set part of it off against her income that year? If so then should the box for 'Total loss to carry forward...' only contain the figure for this year's (2013 / 2014) loss?

Many thanks

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29th Jan 2015 14:58

No

What it means is you can't claim part of the loss to reduce the income to, say, your personal allowance level.

So, say you had losses of £15000, PAYE income of £12000 and the personal allowance was (say) £9000 in the year under review.

You can't just claim £3000 losses against your PAYE income to reduce it to the £9000 personal allowance.

You have to claim the whole £15000, which covers the entire PAYE income of £12000 and you can then carry forward the other £3000 to future years.

 

It becomes a matter of value for money - those £12000 losses would only produce a repayment of about £600 (20% of £(12000-9000)), so carry forward might be a better option.

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29th Jan 2015 15:00

In addition we're planning to

Great, thank you. In addition we're planning to use Cash Basis from now on. I understand that this now means she can't set the loss off against any income from PAYE but can against future profits?

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29th Jan 2015 15:08

Up to you but .................

...... the cash basis is absolutely riddled with pitfalls and I personally have no plans to use or recommend it in the foreseeable future.

Only a reckless fool would use it.

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29th Jan 2015 15:56

It's interesting that you say that, but on the face of it for us it would be much simpler. Under cash basis I believe we can claim for stock purchases when they are paid for, not only once they are sold? Otherwise we need to account for the value of stock held at the end of our accounting period?

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29th Jan 2015 16:11

Simpler, yes. Of course it is.

Better ?   Imho, no.

The biggest sticking point for me is the treatment of capital allowances.  You have to take them, you may not need them.

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29th Jan 2015 16:29

Cash Basis

lionofludesch wrote:

Simpler, yes. Of course it is.

Better ?   Imho, no.

The biggest sticking point for me is the treatment of capital allowances.  You have to take them, you may not need them.

Well said. Glad there's at least one person who has seen the potential pitfalls. All of my self-employed clients have signed an agreement with me for 2013/14 until further notice that their figures will be subject to accruals accounting. As HMRC have said, the profits over the lifetime of a business should be broadly similar but what they haven't said is that, in some cases, the tax payable could be higher under the cash accounting rules.

 

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29th Jan 2015 16:40

Carp idea

I thought it was a carp idea when I first heard it and subsequent events have only led me to think it's not as good as I thought.

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29th Jan 2015 16:56

Set off is an all or nothing - either all up the level of all other income or nothing you cant just do "a bit" therefore if you did not set the losses off correctly in 2012/2013 you will need to amend the return.
If in fact there were more losses in 2012/2013 than all other income then the surplus losses can be carried forward and added to the new losses.
You will have to make sure you are using the losses brought forward against profits of the same trade.

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