If you make a loss If you make a loss in your self employment business you can choose to: *Set the loss off against any other profits made this year *Set the loss off against profits made last year (or for accounting periods ending between 24 November 2008 and 23 November 2010, the preceding three years), or *carry forward against future profits. In addition, there is the availability of a three-year carry-back for losses incurred in the opening years of a trade. Which way should you go? The decision as to which way to go will be dependent on: *future profit levels *other income for the year *the level of income for the previous years *the tax rates in each of those years. If you choose to use the cash basis (available from 2013/14 where eligibility conditions are met) losses must be carried forward. If a trading loss is claimed against other income, either for the current or previous year, then by election this can be extended to capital gains, resulting in a further refund of taxes. Business cessation On cessation of a business, a claim for terminal loss relief can be made. The terminal loss is the loss made in the final two tax years. The terminal loss may be relieved against the profits of the trade for the final tax year and previous three tax years. Relief is given against a later year before an earlier year. Alternatively the loss can be set against total income (and extended to capital gains) of the year of the loss and/or the preceding year. When calculating your taxable loss, you will need to consider whether to claim full capital allowances to maximise the loss or whether you would be better carrying forward a larger pool and claim more capital allowances in future years.
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