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Sole trader - transfer trading losses

I currently work in industry so my personal tax is not 100% but a friend of mine asked for some advice and I was intrigued by her situation. She has a family so does not have a job, but she does do some occasional work as a sole trader and consequently does a self assessment. She operated a trade where she acted as an agent for a childrens toy company (similar to the old days of Avon parties, tupperware parties etc). The top level company went into liquidation meaning that her trade had to cease. This left her with trade losses of about £4k. This loss was for 2016/17 and was carried forward to 2017/18. She is now doing her 2017/18 SA return and wants to know what to do with the loss that is being carried.

 

I have a couple of questions that I hope you can help with...

 

Obviously a loss can be carried forward, but can it be used against future trading profits if the future trade is different, or does it have to be used against the same trade?

 

Although my friend is now trading again and making a small profit this is not going to be taxable as she will have her personal allowance, and it will be some time before she will ever need to pay tax, therefore there is little use for the loss at present.

 

The trade that she was doing never made a profit so the loss cannot be carried back/early years relief.  She did work before having children and paid PAYE tax 4 years ago, does she still have the option to use the trading loss to offset her PAYE?

 

Sorry for the multiple questions but it would be interesting to hear what people think.

 

Thanks :-)

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11th Jan 2019 11:24

Regardless of whether there is any tax to pay on her profits this year she is still required to use the loss fully against her current year trading profits so in all likelihood it will be lost without benefit. Them’s the rules. She cannot carry it back 4 years so the loss is lost.

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11th Jan 2019 11:34

Is the current trade the same trade as the trade she has had over the last four years or is it a brand new trade ?

In other words, is she still selling toys or is she selling something totally unrelated, such as sausages ?

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to lionofludesch
11th Jan 2019 11:56

Thanks for the responses.

Her new trade is completely different and unrelated.

Cheers

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to Mikey-Mikey-Mikey
11th Jan 2019 12:12

Well, that's the carry forward option gone then.

Depending on dates, she might just squeeze in a claim for losses in the early years of trade (s72 ITA 2007).

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to lionofludesch
11th Jan 2019 12:43

Terminal loss relief for the old trade?

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to Red Leader
11th Jan 2019 12:55

I'm thinking no - but it's impossible to say without some more numbers.

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to lionofludesch
11th Jan 2019 12:54

Quote:

Well, that's the carry forward option gone then.

Depending on dates, she might just squeeze in a claim for losses in the early years of trade (s72 ITA 2007).

That is the kind of route I was thinking. I was just not sure if the loss could be offset against her PAYE going back up to 4 years.

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to Mikey-Mikey-Mikey
11th Jan 2019 14:22

Three years - you might just be able to clip the edge.

Your alternative is same year relief against the new business - but that may not save you much tax.

Hurry up. Three weeks left to claim.

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11th Jan 2019 14:46

Seems like you know your stuff.

How can it be used against the new trade?

It looks like it will be used against her previous PAYE. To make matters more complicated she has been using the cash basis, but I am going to try and persuade her to go to accruals based as she is just doing 2 days a week renting a room to do reiki healing. As a result there is no debtors/creditors etc so no need to go cash accounting (in my opinion).

Can I just check that the length of roll back. I thought it was able to go back 4 tax years, not 3?

Thanks,

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to Mikey-Mikey-Mikey
11th Jan 2019 15:01

Quote:

Seems like you know your stuff.

You're very kind. Though perceptive.

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How can it be used against the new trade?

You can use it if the the trades are carried on in the same year. It's an option though I suspect it won't help.

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It looks like it will be used against her previous PAYE. To make matters more complicated she has been using the cash basis, but I am going to try and persuade her to go to accruals based as she is just doing 2 days a week renting a room to do reiki healing. As a result there is no debtors/creditors etc so no need to go cash accounting (in my opinion).

All bets are off if you use cash accounting. You'll be stuck with carry forward, which is no use to you.

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Can I just check that the length of roll back.?

Certainly.

Quote:
I thought it was able to go back 4 tax years, not 3.

You thought wrong.

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