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Tax repayments for new businesses

You've just started a new business, and it is costing you so much:

The equipment, the insurance, the advertising, the software, the little pieces of expenditure that come out of nowhere but are absolutely vital? (Believe us, we know!)

You could be spending thousands of pounds before you have even started to trade, or have taken on your first customer.

So why not make that work for you?

Tax losses are useful

Everyone's situation is different, and there are so many ways you can make use of losses. we won't go through them all but let us take you through a recent example:

Sally was working as an employee earning ~£60k a year. She was a higher rate taxpayer (paying tax at 40% on some of her income).

In November 2020 Sally left her job (having earned £40,000 in the tax year so far). She decided to set up her own consultancy practice as a sole-trader.

Sally spent £10,000 on her new software, advertising, insurance, etc and she doesn't expect to receive any income until after April 2021.

Sally should still report the losses on a tax return, and she should do it as soon as she can!

Sally could use those losses to offset her income in the current year, she a basic rate taxpayer in that year (from her employment up to Nov 2020) so she would get circa £2,000 as a tax repayment from HMRC a few weeks after submitting her tax return.

A far better option would be to carry back the losses to either the previous year (or an earlier year) to when she was a higher rate taxpayer and potentially get a £4,000 repayment (or more). You'd also be able to use the losses separately to reduce your National Insurance contributions in future years.

HMRC certainly won't tell you what is the best option for you, but an early tax repayment to inject some much-needed working capital into your business could be vital to its success. You need someone to analyse what is the best use of the losses for your own situation. You have a choice and the wrong one could see you miss out.

A good accountant and tax advisor can make a huge difference to the success, and the speed of your success in business.

Please get in touch now if you want to discuss your business.

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