I hoping someone can quickly give me an answer to this please. Although I’ve been doing self assessment returns for a few years now, I’ve had a mental block and need clarification that I do carry forward any profit (or loss) from my previous tax year to my current tax year. It makes sense that I do, but I’ve searched online and through HMRC and nothing is jumping out as black and white to actually answer my question.
I suddenly noticed, having sent in my figures online, that I hadn’t carired forward my previous profit so I’ve just gone back in an updated my return. That’s when it got me thinking and searching to make sure I’ve done it correclty.
I’ve been doing this for a few years now and only been making a small profit the last 2 years. My first year’s losses were a fair amount of money and then the second year my losses were about half of that of the first year. I have reached the point this year whereby I have not managed to “use up” the losses from the first year cos so far my profits have not been enough to set off against those losses but because you have a given amount of time to use up each of the losses I have now “written off” the unused losses from the first year. This means that I have the losses from the second year to set losses against this year and if I don’t use those up, I will write off any unused losses on my next tax return.
If it helps, I have put a note in my accounts as a reminder to myself that losses from 2010/11 have to be used up by 5/4/2015 and losses from 2011/12 have to be used up by 5/4/2016.
Blimey, that’s confused me even more lol. Need a stiff drink and a re-read I think! So basically, yes, you move over any losses or profit to the next tax year. So surely, if you’re lucky enough to make a profit each year, and you’re taxed on that profit, and then move that profit over to the next year and continue to build and make profit, you’re being taxed again on the original profit. Does that make sense?
Elaine @elliestreasures Profits are NOT carried forward, only losses.
If you carried your profits forward each year you would be taxed again and again on them. LOL
However you can carry losses forward if necessary.
If you have taxable income from another source - eg PAYE job, other self-employment, pension
then the losses in the tax year can be used to reduce this other income so that you do not have as much taxable income. In fact those losses can mean that you have a tax refund if you have paid income tax on that other income.
If you have no other income to use the losses against, then you would carry forward the losses to the next year, in case you win Dragon’s Den and make massive profits!
And as Julia @TheCraftyBride says, any losses carried forward are time limited.
Just to make it more confusing losses can also be carried back in some cases, to a year when you made profits and paid tax or paid tax on other income. You would only do this if it meant you could claim back some tax that you had paid.
No. If you make a loss, you record that loss and you have 4 years to use up that loss. So, if your loss in your first year is £800 and then in the second year you make a profit of £300, you can set off the £300 against the £800 loss, which means that you would not pay tax on the £300 (but you would only be paying tax on the £300 profit if you already paid tax through other employment anyway) and you would carry forward a loss of £500 (£800 - £300). If in the third year you made a profit of only £50, then your carry forward loss would be £450 and so on until you either use up all of the loss or until the use up date, whichever comes first.
If you make a profit, then you would declare that you have made a profit in that year on the tax return and depending on your employment status i.e. if you have income from other employment then you would pay tax and N.I. I can’t comment on exactly what would happen if you do work as I don’t and so I don’t know about that but if you don’t work then you don’t pay N.I. until you have made somewhere in the region of £5,800 profit (this figure may have increased since the last time I looked) and you wouldn’t pay tax until you have made somewhere in the region of £10,000 profit, but again you would have to find out the exact figure.
I know that you can carry forward losses for so many years but have never heard of carrying forward profits but you would only pay tax on any profit once.
I have been completing tax returns for small business people for nearly 40 years and it isn’t easy to understand for anyone not used to it.
One of the reasons I gave up Accountancy was because it was becoming more and more intricate and involved and difficult to understand.
If that is the only problem you have then you are doing very well and Julia @TheCraftyBride has an excellent understanding of it!
Mine is pretty straightforward as I have no other income at the moment so hopefully I’m not missing anything. Of course, this could certainly change when I return to full time employment (buries head and puts thoughts of that away for the time being).
I have a feeling (from reading it somewhere!) that if you use the new ‘cashbook accounting’ method to complete your tax return (instead of the traditional method), you can’t offset losses. Anyone else come across that, and is it correct?
Actually you might be right Christine @ciesse.
It’s not a system that many accountants would recommend that you use for all sorts of reasons.
And it came in after I stopped practising accountancy.
Will have to go and check it out.
Shirley x
Elaine @elliestreasures
Christine @ciesse you are right. Thank you for pointing this out.
If using Cash Accounting there is no carry back or sideways relief for trading losses.
They can only be carried forward for use against future profits.
So you would not be able to set these losses off against other taxable income in that tax year.
If you are using the Cash Accounting method you will have ticked the Cash Basis Box on your Self Assessment form when completing it.
