Sideways tax relief. Partnership losses v PAYE tax
Discussion
I was an employee for the last 3 years. In the last year, I was paid a large'ish bonus - all taxed at source along with my salary for the year.
I was also part of a separate partnership, which suffered losses.
Can I use sideways relief to offset my share of the partnership losses against my PAYE tax.
I think I can, but before I argue the toss with an accountant, I thought I'd ask on here.
I was also part of a separate partnership, which suffered losses.
Can I use sideways relief to offset my share of the partnership losses against my PAYE tax.
I think I can, but before I argue the toss with an accountant, I thought I'd ask on here.
- awaits Eric Mc......
Yes.
Trading losses, including shares of losses from a trading partnership, can be offset against other taxed income earned IN THE SAME TAX YEAR.
So, if the partnership made a trading loss in 2011/12, you can offset your share of that particular trading loss against your employment income for 2011/12.
However, if the partnership also had losses brought forward from earlier tax years (say 2009/10 and 2010/11), the losses from THOSE tax years cannot be offset against other 2011/12 income.
Trading losses, including shares of losses from a trading partnership, can be offset against other taxed income earned IN THE SAME TAX YEAR.
So, if the partnership made a trading loss in 2011/12, you can offset your share of that particular trading loss against your employment income for 2011/12.
However, if the partnership also had losses brought forward from earlier tax years (say 2009/10 and 2010/11), the losses from THOSE tax years cannot be offset against other 2011/12 income.
A loss can be offset against other income in the same year or can be carried back against other income in the previous tax year but no further.
You seem to have historic losses which you would like to offset against later "other income". This you can't do. All you can do with carried forward historic losses is offset them against future profits FROM THE SAME TRADE.
You seem to have historic losses which you would like to offset against later "other income". This you can't do. All you can do with carried forward historic losses is offset them against future profits FROM THE SAME TRADE.
OK - I see what you mean.
You have a trading loss in 2011/12 which you want to offset against other income received in 2010/11. You CAN do this as you can carry back and offset a loss incurred in 2011/12 against other income earned in 2010/11.
There are some restrictions and "order of offset" rules which your accountant should keep you straight on.
You have a trading loss in 2011/12 which you want to offset against other income received in 2010/11. You CAN do this as you can carry back and offset a loss incurred in 2011/12 against other income earned in 2010/11.
There are some restrictions and "order of offset" rules which your accountant should keep you straight on.
Thanks Eric.
It is quite complicates, as calculating any loss has always been based on a theoretical asset value, presumably as Work In Progress.
These properties will sell this year at a loss, so the previously calculated losses are all now crystallising with actual known figures which will be worse than originally anticipated.
While I was incurring this loss, I was having a very good year of employment and was PAYE'd heavily in one particular year.
The possibility of getting some of that back is a tiny
of light at the end of a dimly lit tunnel.
Thanks as always!
It is quite complicates, as calculating any loss has always been based on a theoretical asset value, presumably as Work In Progress.
These properties will sell this year at a loss, so the previously calculated losses are all now crystallising with actual known figures which will be worse than originally anticipated.
While I was incurring this loss, I was having a very good year of employment and was PAYE'd heavily in one particular year.
The possibility of getting some of that back is a tiny
of light at the end of a dimly lit tunnel.Thanks as always!
Eric Mc said:
Yes.
Trading losses, including shares of losses from a trading partnership, can be offset against other taxed income earned IN THE SAME TAX YEAR.
It's not a simple yes. You have to prove that you spent a certain amount of time working in the partnership...I think it's 10 hours a week. If you were in employment elsewhere that might be hard to do.Trading losses, including shares of losses from a trading partnership, can be offset against other taxed income earned IN THE SAME TAX YEAR.
Sideways Loss Relief was widely exploited in "tax mitigation" structures.....HMRC are clamping down very hard.
Here you go
http://www.hmrc.gov.uk/manuals/bimmanual/bim75765....
During the relevant period does not spend, on average, at least 10 hours a week personally engaged in activities of the trade. Those activities must be carried out on a commercial basis and with a view to the realisation of profits as a result of those activities.
http://www.hmrc.gov.uk/manuals/bimmanual/bim75765....
During the relevant period does not spend, on average, at least 10 hours a week personally engaged in activities of the trade. Those activities must be carried out on a commercial basis and with a view to the realisation of profits as a result of those activities.
Cheib said:
Here you go
http://www.hmrc.gov.uk/manuals/bimmanual/bim75765....
During the relevant period does not spend, on average, at least 10 hours a week personally engaged in activities of the trade. Those activities must be carried out on a commercial basis and with a view to the realisation of profits as a result of those activities.
In all the years I have beemn submitting loss relief claims, I can safely state that the number of times HMRC successfully blocked a claim based on the hours worked limits is exactly nil. I only ever had one challenge based on their assertion that the activity was a hobby rather than a business (more or less the same argument) but HMRC backed down after a few letters and a meeting.http://www.hmrc.gov.uk/manuals/bimmanual/bim75765....
During the relevant period does not spend, on average, at least 10 hours a week personally engaged in activities of the trade. Those activities must be carried out on a commercial basis and with a view to the realisation of profits as a result of those activities.
Eric Mc said:
Cheib said:
Here you go
http://www.hmrc.gov.uk/manuals/bimmanual/bim75765....
During the relevant period does not spend, on average, at least 10 hours a week personally engaged in activities of the trade. Those activities must be carried out on a commercial basis and with a view to the realisation of profits as a result of those activities.
In all the years I have beemn submitting loss relief claims, I can safely state that the number of times HMRC successfully blocked a claim based on the hours worked limits is exactly nil. I only ever had one challenge based on their assertion that the activity was a hobby rather than a business (more or less the same argument) but HMRC backed down after a few letters and a meeting.http://www.hmrc.gov.uk/manuals/bimmanual/bim75765....
During the relevant period does not spend, on average, at least 10 hours a week personally engaged in activities of the trade. Those activities must be carried out on a commercial basis and with a view to the realisation of profits as a result of those activities.
http://www.spearswms.com/spears-world/wire/31855/t...
Revolved around sideways loss relief so it's very much on the agenda.
Rules are rules as far as HMRC are concerned as I am sure you are aware. If you claim for it HMRC obviously have a long time to challenge you over it so you'd ideally need to provision against them coming after you.
I made commercial property investment in my SIPP in 2002 which was sold in 2008....people who made that investment outside a SIPP got an unexpected additional CGT bill from HMRC last month...four years after the sale!
Edited by Cheib on Wednesday 25th April 09:22
Most of my clients are fairly straightforward and claims tend to be made based on the reality of their circumstances, rather than through atempts to artificially exploit tax "loopholes".
The case where I won concerned a loss making antiques trader who consistently made losses and never made profits. They were subsequently able to recover some PAYE each year.
HMRC decided that the taxpayer was conducting a hobby rather than running a bona fide trade and tried to block the loss relief claims. We were able to successfully argue that although the trade was being run at a loss, it was not a hobby, just a badly run business. It was quite quite funny explaining to HMRC, with the client in attendance, how incompetent a businessman the client was
It worked and all the loss relief was allowed.
The case where I won concerned a loss making antiques trader who consistently made losses and never made profits. They were subsequently able to recover some PAYE each year.
HMRC decided that the taxpayer was conducting a hobby rather than running a bona fide trade and tried to block the loss relief claims. We were able to successfully argue that although the trade was being run at a loss, it was not a hobby, just a badly run business. It was quite quite funny explaining to HMRC, with the client in attendance, how incompetent a businessman the client was
It worked and all the loss relief was allowed.
Eric Mc said:
HMRC decided that the taxpayer was conducting a hobby rather than running a bona fide trade and tried to block the loss relief claims. We were able to successfully argue that although the trade was being run at a loss, it was not a hobby, just a badly run business. It was quite quite funny explaining to HMRC, with the client in attendance, how incompetent a businessman the client was
It worked and all the loss relief was allowed.
Haha....brilliant. I suppose some people have similar situations where they set their trophy wives up in some kind of business (boutique/gallery) to stop them getting bored. Doomed to failure and probaly only redeeming feature is the tax relief! That or people trying entrepreneurial ventures whilst still employed. It worked and all the loss relief was allowed.
Thanks Cheib & Eric.
Looks like I have some complicated work to do with my accountant to sort all this crap out. QUite a complicated situation going back 6 years, involving multiple properties, sold in different tax years.
Just a complete mess. All totally the result of my ineptitude and 'head in the sand' attitude of 'it will all come out at the end' etc.
Looks like I have some complicated work to do with my accountant to sort all this crap out. QUite a complicated situation going back 6 years, involving multiple properties, sold in different tax years.
Just a complete mess. All totally the result of my ineptitude and 'head in the sand' attitude of 'it will all come out at the end' etc.
As a matter of interest, expecting Eric to answer this, whats to stop me setting up a business, from home for sake of argument, that I pay costs such as car/phone etc from, but makes no money so I shut it down after a year or two, start another one and so on?
Thus allowing me to offset against the paye from my proper job on an ongoing basis?
Thus allowing me to offset against the paye from my proper job on an ongoing basis?
ellroy said:
As a matter of interest, expecting Eric to answer this, whats to stop me setting up a business, from home for sake of argument, that I pay costs such as car/phone etc from, but makes no money so I shut it down after a year or two, start another one and so on?
Thus allowing me to offset against the paye from my proper job on an ongoing basis?
Ethics?Thus allowing me to offset against the paye from my proper job on an ongoing basis?
ellroy said:
As a matter of interest, expecting Eric to answer this, whats to stop me setting up a business, from home for sake of argument, that I pay costs such as car/phone etc from, but makes no money so I shut it down after a year or two, start another one and so on?
Thus allowing me to offset against the paye from my proper job on an ongoing basis?
Not just ethics.Thus allowing me to offset against the paye from my proper job on an ongoing basis?
There is also the small matter of criminal law.
You would have extreme difficulty proving to HMRC that a bona fide business ever existed.
And, if you had been successful, initially, in extracting some tax refunds on your premise (i.e. a non-existant business claiming non-existant losses), HMRC would have a very strong tax fraud case against you.
Article in the FT today
http://www.ft.com/cms/s/0/1a37f398-8e1a-11e1-bbae-...
It's these film deals that have resulted in the stricter rules on Sideways Loss Relief.
BPRA's are the new schemes....though they actually involve investing in physical property and getting it rennovated.
http://www.ft.com/cms/s/0/1a37f398-8e1a-11e1-bbae-...
It's these film deals that have resulted in the stricter rules on Sideways Loss Relief.
BPRA's are the new schemes....though they actually involve investing in physical property and getting it rennovated.
Cheib said:
Article in the FT today
http://www.ft.com/cms/s/0/1a37f398-8e1a-11e1-bbae-...
It's these film deals that have resulted in the stricter rules on Sideways Loss Relief.
BPRA's are the new schemes....though they actually involve investing in physical property and getting it rennovated.
Having calculated my total losses for the lat 5 years I could have funded a film myself...http://www.ft.com/cms/s/0/1a37f398-8e1a-11e1-bbae-...
It's these film deals that have resulted in the stricter rules on Sideways Loss Relief.
BPRA's are the new schemes....though they actually involve investing in physical property and getting it rennovated.
Just spoken with my accountant. Need to correctly allocate the build costs to the correct tax years so we can compile full and final adjusted accounts and then meet with HMRC and present our case.
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