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how to offset sole trader losses

client making losses that cannot fully be relieved

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Client has made losses from sole trader activity (arts and crafts type small business making greetings cards at home). Losses now add up to £16k after 4 years although the most recent loss (17/18) was only £380.

Other income from pensions in 17/18 totalled £17,000 so if we opt to offset all the losses then we lose about £10k of losses as the total of trading losses must be used all at once.

Is there anything else that could be done? There are no Capital Gains/Losses and now in year 5 of business so cannot carry back. Client unlikely to cease in next few years so terminal loss relief unlikely, but profits not going to appear any time soon with this type of trade., client advises 18/19 so far is similar to 17/18.

Shall we just accept that some loss relief now is better than hanging on and hoping for a good trading year in 19/20 or beyond?

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By Accountant A
14th Jan 2019 15:26

Are you sure it's actually a trade and not a hobby? How can you lose £4,000pa (£80pw) making cards?

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Replying to Accountant A:
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By SteveRA
14th Jan 2019 15:39

it makes other gift type items such as ceramics (fridge magnets and mugs) and some of the equipment has needed repairs already (sigh! Yes it is one of those 'businesses') but turnover is steadily increasing and it is almost in profit! Postage and packing is quite high for the mugs and online sales platforms take a cut, plus some design work has been bought-in.

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By Tim Vane
14th Jan 2019 15:52

I’m not sure I agree with your maths. If the loss for 17/18 is £380 why wouldn’t you sideways relieve it? How would you lose £10k of losses when you only have £380?

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Replying to Tim Vane:
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By SteveRA
14th Jan 2019 16:12

By bringing forward all the unused losses and offsetting in one hit. I can only claim all the brought forward losses or none?

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By Wanderer
14th Jan 2019 16:18

Are you sure you can offset brought forward losses against current year total income???

https://www.gov.uk/government/publications/losses-hs227-self-assessment-...

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Replying to Wanderer:
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By raju m
16th Jan 2019 11:59

You can not off-set b/fwd trading losses against other income. You can only use it against future profits.

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By Wanderer
16th Jan 2019 13:18

Dunno why you are addressing that towards me. Isn't it obvious that I knew that? (Hint read the whole thread).

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By SteveRA
14th Jan 2019 16:34

I looked at this help sheet earlier today, it says it is for 2017 so I took that to be a 16/17 help sheet but maybe I am wrong. This is what I read:
4.1 Loss set-off against income or income and capital gains
You may use the loss against your income for 2016 to 2017 or 2015 to 2016 or both years. The loss you claim against income will normally be the whole of the loss. If the loss is more than your income, claim the figure of income. You may be able to use the remaining loss, or part of it, against your chargeable gains. You’ll find information on this in SA108 Notes.
If it is not a 16/17 example (in the helpsheet) then yes, I cannot use b/f losses against CY income. Is this what you meant too Tim?
Thank you both for your help. Lucky not to have had any clients with losses in 28 years of work as a sole practitioner!

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By Wanderer
14th Jan 2019 16:43
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By SteveRA
14th Jan 2019 17:04

Thank you Wanderer, I don't know why I didn't spot that earlier. I am, quite frankly, feeling ready for retirement. Only 56 but losing confidence fast. Have had a good run but now the old brain is just not as quick as it once was. My husband (yes, I am female) has a good job and we both have pension provision and children off our hands. Mortgage paid off. Car loan paid off. Just worry that I will let my clients down by making a huge mistake one of these days. Would not be a good way to close down after so many years with no complaints. The only thing stopping me retiring is the nightmare of telling clients. They are very loyal and some are elderly.

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Replying to SteveRA:
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By susieq
16th Jan 2019 12:40

Know how you feel! I'm 54 and work alone from home and mostly love it but sometimes really miss being able to discuss options with colleagues. Fast changing profession but I've seen some real clangers made by firms with lots of staff so I console myself with knowing I'll do lots of research if I come across something I'm not sure about.

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RLI
By lionofludesch
14th Jan 2019 17:51

Agree with the caveats above.

Carry forward losses can only be set against profits of the same trade.

Sideways and backwards losses have to be dealt with separately and can (generally) be used against other sources of income.

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Replying to lionofludesch:
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By SteveRA
14th Jan 2019 18:00

Thank you very much Lion, a nice succinct response which I shall commit to memory for future use. Retirement probably still 18 months away!

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By bettybobbymeggie
14th Jan 2019 22:20

You still have time to amend 2016/17 if there are losses available there for sideways relief against general income.

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Replying to bettybobbymeggie:
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By SteveRA
15th Jan 2019 09:42

Thanks Betty, have just done this, only a small claim, £188, as other income was low but should be helpful to this client, and with little prospect of using the losses on carry forward any time soon this seems a better option.

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