I have a small self-employment business which has made a loss for the past 2 tax years, as my only other source of income is investment income. Are my losses wasted?
Provided your business is run on a commercial basis with an expectation of profits then your losses can be off set against other income as follows;
You can make a current year loss claim to offset the loss against your investment income. The amount of loss relief available is restricted to the higher of 25% of your taxable income in that year or £50,000.
You can carry the loss back to the previous tax year against your total income including the investment income, again the loss relief is restricted to the higher of £50,000 or £25% of your total taxable income when off setting against investment income. However if the loss is being carried back against profits of the same trade there is no restriction.
Or you can carry the loss forward to offset against future profits of the same trade. There is no restriction on this relief.
You have not stated the amount of investment income or if this is interest or dividends and therefore as you may be able to utilise the starting rate savings band, the personal savings allowance, the dividend allowance and your basic personal allowance which providing your income is less than £45,000 could mean 0% tax on at least £22,500. Therefore you should consider each of these before doing any loss claim.
I also note as you will be utilising your trade loss against non-earned income you will be offsetting against income tax only. This means you can still carry forward the loss for class 4 NIC purposes against future trade income. Therefore it is important to keep a good record of how your losses have been used.
Finally you should note that the time limit for amending a return, should you wish to carry back a loss from 2016/17 to 2015/16 is 31 January 2018.
The advice in this column is specific to the facts surrounding the questions posed. Neither PKF-FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.
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