Helpsheet 222
Tax year 6 April 2013 to 5 April 2014
How to calculate your taxable profits
AContacts
Please phone:
•the number printed
on page TR 1 of
your tax return
•the SA Helpline on
0300 200 3310
•the SA Orderline on
0300 200 3610
for helpsheets
or go to hmrc.gov.uk/sa
Use this helpsheet to help you fill in the Self-employment pages of your
personal tax return, or the Trading pages of the Partnership Tax Return and
the Partnership pages of your personal tax return.
For information on:
•allowable business expenses, see page 6
•basis period – what it means, see page 10
•overlap profits, see page 12
•losses, see page 13.
To help you work out your taxable profits, you can choose to record money
received (income) and money paid out (expenses) over the tax year, in one of
the following ways.
•Cash basis accounting – record income when it actually comes in and goes
out of your business.
•Traditional accounting (accruals basis) – record income and expenses when
you invoice your customers or receive a bill.
Accounting periods
Your accounting date is the end date for your accounting period. This can
be any day that you choose, for example, the anniversary of the date your
business started, but you may find 5 April is the best date to pick as it keeps
your tax calculation simple.
The beginning of your accounting period is usually the day after the end
of your previous accounting period. For example, if you made your books
up to 5 April 2013 last year, the date your books start this year will be
6 April 2013.
Cash basis
From the 2013–14 tax year, you can choose to start using cash basis.
This is a simpler way of working out your business profit or loss.
You record money when it actually comes in and goes out of your business.
If you use the cash basis:
•you only record income when it’s received
•you only record expenses when they’re paid
•payments for equipment, including vans, are allowable expenses
•a maximum of £500 is allowed as an expense for interest paid on
cash borrowings
•any losses you make can’t be set off against your other income
•you can’t claim capital allowances for anything except cars.
You can use the cash basis if you are a self-employed business (sole trader
or partnership) and your turnover is £79,000 or less for the year, (this is the
threshold when you have to register for VAT). This increases to £158,000
if you claim Universal Credit.
HS222 2014
Page 1
HMRC 12/13
If you want to use the cash basis and you have more than one business, you
must use the cash basis for all your businesses. The combined turnover of all
your businesses must be below £79,000 for you to use the cash basis.
If you choose to use the cash basis or you are already using it, put an ‘X’
in the cash basis box on your Self-employment, Partnership pages or your
Partnership Tax Return.
Talk to a chartered tax adviser, accountant or legal adviser if you need
more help.
Limited companies, limited liability partnerships and the following specific
types of businesses cannot use the cash basis.
•Lloyd’s underwriters.
•Farming businesses with a current herd basis election.
•Farming and creative businesses with a section 221 ITTOIA profit
averaging election.
•Businesses that have claimed Business Premises Renovation Allowance.
•Businesses that carry on a mineral extraction trade.
•Businesses that have claimed research and development allowance.
Entering the cash basis
If you have an existing business and you are switching over to the cash basis,
you might have to make some one-off adjustments to your tax in this period.
If this is your first tax period with self-employment income, you will not need
to make any adjustments.
Page 2
AContacts
Please phone:
•the number printed
on page TR 1 of
your tax return
•the SA Helpline on
0300 200 3310
•the SA Orderline on
0300 200 3610
for helpsheets
or go to hmrc.gov.uk/sa
The table below shows if you need to make an adjustment, and if so, how to
make it.
When you need to make an adjustment
How to do the one-off adjustment
If your customers owed you money at the
end of the previous tax year, and you paid
tax on that amount in that tax year, and
your customers have now paid you in this
tax year.
Take away the amounts owed to you
from your total cash basis turnover
for this current tax year.
If you owed money to your suppliers at
the end of the previous tax year, and you
received tax relief on that amount in that
tax year, but you did not pay your supplier
until this tax year.
Take away the amounts owed to your
suppliers from your total cash basis
expenses for this current tax year.
If you had a stock of items at the end of
your previous tax year, but you did not get
tax relief for the cost.
Add the cost of those items of stock
to your cash basis expenses for this
current tax year.
If you received money from your customers
in the previous tax year (for example,
payments made in advance of work done)
that you did not pay tax on.
Add the amounts that your customers
paid you (but you were not taxed on)
to your total cash basis turnover for
this current tax year.
If you paid money in advance for certain
items in the previous tax year (for example,
a subscription, or a deposit) that you did not
get tax relief for.
Add the amounts that you paid to
your suppliers (which you did not get
tax relief for) to your total cash basis
expenses for this current tax year.
If you paid in full for items of equipment, and
you had a balance of capital allowances (see
Capital allowances and balancing charges
on page 13) still to claim on that equipment,
at the end of your previous tax year.
Add the balance of capital allowances
you can still claim, to your total
cash basis expenses for this current
tax year.
If you partly paid for items of equipment
(for example, by instalments) by the end of
your previous tax year, but you had claimed
a different amount.
If the amount you partly paid was
more than the capital allowances
claimed, we treat the difference as
an expense (increasing your total
cash basis expenses) as a transitional
adjustment for the current tax year.
If the amount you partly paid was
less than the capital allowances
claimed, we treat the difference as
turnover (increasing your total cash
basis turnover) as a transitional
adjustment for the current tax year.
Partnership and cash basis
Partnerships can use the cash basis if the total partnership turnover is within
the cash basis limits, see page 1.
Special rules for partners with other trading activities
If you are the controlling partner in your partnership (you have the right to
more than one-half of the assets or more than one-half of the partnership
income), you must add together the total turnover from the partnership and
any other, separate, trading activities (businesses) that you have, to find out if
you can use the cash basis.
Page 3
If you are not the controlling partner, you do not include the partnership
turnover when working out if your other, separate, trading activities can use
the cash basis.
If two partners own a partnership equally, there is no controlling partner.
Example 1
Jayne and Chris are joint (50/50) partners in a landscape gardening partnership.
The partnership’s turnover is £76,000 for the year ended 5 April 2014.
Jayne has a separate business dealing in rare orchids; the turnover for this business is
£45,000 for the same period.
Chris also has a separate business as a florist; his turnover for the same period is £160,000.
Jayne and Chris do not claim Universal Credit.
The landscape gardening partnership can use the cash basis, because the partnership
turnover is below the £79,000 threshold for the tax year.
Jayne and Chris do not need to include any turnover from their separate businesses in the
partnerships cash basis calculation, because there is no controlling partner.
Jayne’s rare orchids business can use the cash basis if she chooses, because the business
turnover is below the £79,000 threshold.
Chris’s separate florist business must use traditional accounting to work out his business
profits, because his turnover (for this business) exceeds the cash basis limits.
Income and expenses under the cash basis
Income
With cash basis, you only count money received in the tax year. You do not
count money owed to you until you receive it.
Money received in any form counts, such as; cash, by card, cheque and
payment in kind or any other method.
Expenses
If you use the cash basis you only claim expenses you actually paid out in the
tax year. You do not count money you owe, until you pay it.
Records you must keep under the cash basis
You must keep records of:
•money received (income)
•money paid out (expenses).
See Allowable business expenses, on page 6, for a full list of allowable and
non-allowable business expenses.
Traditional accounting (accruals basis)
Traditional accounting is not the same as cash basis accounting. Cash basis
records money when it actually comes in and goes out of your business,
traditional accounting records income and expenses when you invoice your
customers or receive a bill.
The following notes explain traditional accounting, but they are not a
complete guide. If you need more information contact your tax adviser.
Page 4
AContacts
Please phone:
•the number printed
on page TR 1 of
your tax return
•the SA Helpline on
0300 200 3310
•the SA Orderline on
0300 200 3610
for helpsheets
or go to hmrc.gov.uk/sa
Records you must keep under traditional accounting
Records must include:
•all your sales and takings (income)
•all your purchases and expenses.
This might include:
•business assets you’ve bought (for example, stock or equipment)
•value of stock and work in progress at the end of your accounting period
•details of payments to employees (for example, wages, expenses or benefits)
•business vehicle and travel costs
•interest from any bank or building society accounts
•other money coming in, such as; money you invest in your business.
If you are using traditional accounting, only include business expenses
in your accounts if they belong to that accounting period. If you make a
payment which covers more than one accounting period, you need to spread
that cost over the periods that they belong to. For example, if you pay
12 months’ rent in advance halfway through a year; only include half of
the payment in that year’s accounts. Include the other half in the next
accounting period.
See Allowable business expenses, on page 6, for a full list of allowable and
non-allowable business expenses.
Cost of sales
This is the cost of any raw materials and goods bought for resale which you
used during your accounting period. Use the Working Sheet below to help
you work out how much you can claim. Don’t include:
•items received in your last accounting period, that you paid for in this
accounting period
•the value of stock on hand and uncompleted work in progress at the end of
the accounting period.
Working Sheet
Goods and raw materials you bought this period
(include items you still need to pay for)
Stock on hand and work in progress at the start of the period
(the closing figure used in your last accounts)
A £
B £
Box A plus box B
C £
Stock on hand and work in progress at the end of this period
D £
Box C minus box D (box E is the amount you can claim)
E £
Page 5
Allowable business expenses
Use the table below to find out what you can claim. You can use Simplified
expenses (flat rates) instead of actual business expenses, to work out business
costs for vehicles, business use of your home or private use of business
premises as a home (not both).
Category
Allowable expenses
Non-allowable expenses
Accountancy,
legal and other
professional fees.
Accountants, solicitors,
surveyors, architects
and other professional
indemnity insurance
premiums.
Legal costs of buying
property and large items of
equipment; costs of settling
tax disputes and fines for
breaking the law.
Advertising
and business
entertainment
costs.
Advertising in newspapers,
directories and so on
mailshots, free samples,
website costs.
Entertaining clients,
suppliers and customers,
hospitality at events.
Bank, credit card
and other financial
charges.
Bank, overdraft and credit
card charges; hire purchase
interest and leasing
payments.
Repayment of the loans,
overdrafts or finance
arrangements.
Alternative finance payments.
Car, van and travel
expenses.
Car and van insurance,
repairs, servicing, fuel,
parking, hire charges,
vehicle licence fees, AA/RAC
membership; train, bus, air
and taxi fares; hotel room
costs, meals on overnight
business trips.
Non-business motoring
costs (private use
proportions); fines; costs
of buying vehicles; travel
costs between home and
business; other meals.
Phone, fax,
stationery and
other office costs.
Phone, mobile, internet,
email and fax running costs;
postage, stationery, printing
and small office equipment
costs; software.
Non-business or private use
proportion of expenses;
new phone, fax computer
hardware or other
equipment costs.
If there is only insignificant
private use of phone and
internet, the whole cost of
these services is allowable.
Construction
industry – payments
to subcontractors.
Construction industry
subcontractor’s payments
(before taking off any tax).
Payments for non-business
work.
Cost of goods that
you are going
to sell or use in
providing a service.
Cost of goods bought
for resale, cost of raw
materials used, direct cost
of producing goods.
Cost of goods or materials
bought for private use;
depreciation of equipment.
Depreciation and
loss/profit on sale
of assets.
See Capital allowances
and balancing charges,
on page 13.
Depreciation of equipment,
cars and so on.
Insurance policy.
Costs of any business
specific policy.
Recoverable costs.
Interest on bank
and other business
loans (maximum
£500 interest for
cash basis users).
Interest on bank and other
business loans. Alternative
finance payments. For cash
basis users, the maximum
amount you can claim
is £500.
Repayment of the loans
or overdrafts, or finance
arrangements.
Page 6
Losses on sales of assets
(minus any profits on sales).
AContacts
Please phone:
•the number printed
on page TR 1 of
your tax return
•the SA Helpline on
0300 200 3310
•the SA Orderline on
0300 200 3610
for helpsheets
or go to hmrc.gov.uk/sa
Category
Allowable expenses
Non-allowable expenses
Irrecoverable debts
written off.
Amounts included in
turnover but unpaid and
written off (due to being
unrecoverable). Not
relevant if using the
cash basis.
Debts not included in
turnover; debts relating
to fixed assets; general
bad debts.
Other business
expenses.
Trade or professional
journals and subscriptions;
other sundry business
running expenses not
included elsewhere.
Payments to clubs, charities,
political parties and so on;
non-business part of any
expenses; cost of ordinary
clothing.
Rent, rates, power
and insurance costs.
Rent for business premises,
business and water rates,
light, heat, power, property
insurance, security; use of
house as office (business
proportion only).
Costs of any non-business
part of premises; costs of
buying business premises.
Repairs and
renewals for
property and
equipment.
Repairs and maintenance
of business premises and
equipment; renewals of
small tools.
Repairs of non-business
parts of premises or
equipment; costs of
improving or altering
premises and equipment.
Wages, salaries and
other staff costs.
Salaries, wages, bonuses,
pensions, benefits for staff
or employees; agency fees,
subcontract labour costs;
employers’ NICs and so on.
Own wages and drawings,
pension payments or
NICs; payments for
non-business work.
Simplified expenses
From 2013–14, you can start using simplified expenses if you are a sole
trader or business partnership (including limited liability partnerships).
You do not need to be using cash basis to use simplified expenses.
Limited companies and partnerships that include a limited company cannot
use the simplified expenses scheme.
Simplified expenses use flat rates, instead of actual business expenses,
to calculate:
•business costs for vehicles
•business use of your home or private use of business premises as a home
(not both).
All other expenses you have to calculate in the usual way.
You do not have to use simplified expenses. You can decide if it suits
your business.
To find out if the simplified expenses scheme suits your business, go to
www.gov.uk/simplified-expenses-checker
Records you must keep for simplified expenses
Depending on which flat rate(s) you choose to use, you need to record:
•business miles for vehicles
•hours you work at home
•how many people live on your business premises over the year.
Page 7
Business costs for vehicles (flat rate)
Simplified expenses allow you to work out your vehicle expenses, using
a flat rate for mileage instead of the actual costs you paid for buying and
maintaining your vehicle.
Vehicle
2013–14
flat rate per mile
with simplified
expenses
What you can claim
if you don’t use
simplified expenses
Cars and goods
vehicles
first 10,000 miles
45p
Traditional accounting: Capital
allowances and running costs.
Cars and
goods vehicles
after 10,000 miles
25p
Motorcycles
24p
Cash basis: Capital allowances
and running costs (cars) or
purchase costs and running costs
(goods vehicles).
Traditional accounting: Capital
allowances and running costs.
Cash basis: Capital allowances
and running costs (cars) or
purchase costs and running costs
(goods vehicles).
Traditional accounting: Capital
allowances and running costs.
Cash basis: Purchase costs and
running costs (goods vehicles).
Example 2
If you have driven 11,000 business miles over the year.
• 10,000 miles x 45p = £4,500
• 1,000 miles x 25p =
£250
• Total you can claim = £4,750
You need to keep a record of the number of miles you travelled for business,
but you do not need to keep track of your vehicle running and repair costs.
If you have used flat rates for a vehicle, you must stick with this as long as
you use that vehicle for your business.
If you have already claimed capital allowances for a vehicle, you cannot use
the mileage rate for it.
See Capital allowances and balancing charges, on page 13.
Page 8
AContacts
Please phone:
•the number printed
on page TR 1 of
your tax return
•the SA Helpline on
0300 200 3310
•the SA Orderline on
0300 200 3610
for helpsheets
or go to hmrc.gov.uk/sa
Business use of your home (flat rate)
Simplified expenses allow you to work out allowable expenses on using your
home for business using a flat rate based on the hours you work from home
each month (must be 25 hours or more).
Hours of business use per month
2013–14 flat rate per month
25 to 50
£10
51 to 100
£18
101 or more
£26
You use your home for business if you are:
•providing the goods and/or service you supply from your home (this
doesn’t include time when working at someone else’s premises)
•maintaining your business records at home
•marketing and time spent getting new business at home
Example 3
If you worked 40 hours from home for 10 months, and 60 hours for the other
two months.
• 10 months x £10 =
£100
• 2 months x £18 =
£36
• Total you can claim =
£136
Private use of business premises (flat rate)
A small number of businesses use their business premises also as their home,
for example; if you run a guest house, bed and breakfast (B&B) or small care
home. In this case, some of your business premise expenses will be for your
own personal use.
Simplified expenses allow you to take off a monthly flat rate (for private use)
for utilities, household goods and services, food, non-alcoholic drinks, and
rent, from your total expenses. The flat rate depends on how many people
(including non-paying guests) use the business premises each month, or
part month, as a private home. The flat rate does not cover mortgage
interest, council tax or rates. You need to work out the business proportion
of these separately.
Number of people per month
2013–14 flat rate per month
1
£350
2
£500
3+
£650
Example 4
You and your partner run a B&B and live there the entire year. Your overall business
premises expenses (utilities, food, household goods and so on) are £15,000.
• 12 months x £500 per month = £6,000
• Total you can claim is £15,000 – £6,000 = £9,000
Page 9
Example 5
You and your partner run a B&B and live there the entire year. Your child is at university
for 9 months a year but comes back to live at home for 3 months in the summer.
• 9 months x £500 per month = £4,500
• 3 months x £650 per month = £1,950
• Total = £6,450
• Total you can claim is £15,000 – £6,450 = £8,550
Your basis period for 2013–14
You pay tax for 2013–14 based on the profits or losses for your basis
period. After the first year or two in business, your basis period is the
12-month period you use for your accounts (except if you change your
accounting date).
Your accounting period is the period your accounts cover and your
accounting date is the last day of your accounts. For example, if you make up
accounts each year to 31 December, your accounting period for the 2013–14
tax year is 1 January 2013 to 31 December 2013 and your accounting date is
31 December 2013.
Use the following rules to help you work out your basis period (partnerships
do not have basis periods).
General rules for businesses started in 2011–12 or earlier
If you started in business before 6 April 2012 and were still in business at
5 April 2014, your basis period is the 12 months to your accounting date
in 2013–14 (unless you have changed accounting date during 2013–14,
see Changes of basis period, on page 11. For example, you start your
business on 1 January 2012 and you make up your accounts to
31 December 2012 and 31 December 2013, your basis period for 2013–14
is 1 January 2013 to 31 December 2013.
Commencement (business started in 2012–13)
If you started in business during the period 6 April 2012 to 5 April 2013,
your basis period is (unless you have changed accounting date during
2013–14):
•the 12 months to your accounting date, if your accounting date in 2013–14
is 12 months or more after the date on which you started in business
•the 12 months beginning on the date you started, if your accounting
date in 2013–14 is less than 12 months after the date on which you started
in business
•6 April 2013 to 5 April 2014, if you do not have an accounting date in
2013–14.
If you started in business on 1 January 2013, your basis period is:
•1 April 2013 to 31 March 2014, if your accounting date is 31 March 2014
•1 January 2013 to 31 December 2013, if your accounting date is
31 October 2013
•6 April 2013 to 5 April 2014, if your first accounting date is not until
30 April 2014.
If you made up an account to 31 March 2013 but did not make up an
account to 31 March 2014, see Changes of basis period, on page 11.
Page 10
AContacts
Please phone:
•the number printed
on page TR 1 of
your tax return
•the SA Helpline on
0300 200 3310
•the SA Orderline on
0300 200 3610
for helpsheets
or go to hmrc.gov.uk/sa
Business started in 2013–14
If you started in business during the period 6 April 2013 to 5 April 2014,
your basis period is from the date you started to 5 April 2014. For example,
if you started in business on 1 July 2013, your basis period is 1 July 2013
to 5 April 2014.
Cessations
If your business ceased during 6 April 2013 to 5 April 2014, your basis
period is between the end of the basis period for 2012–13 and the date
on which your business stopped. For example, if you stopped trading on
31 December 2013, your 2012–13 basis period ended on 30 April 2012.
Your basis period is the 20-month period 1 May 2012 to 31 December 2013.
Changes of accounting date
There is a change of accounting date if you:
•made up your accounts to a date different from the date used last year
•are going to make up your accounts for more than 12 months, and no
accounting date falls in the 2013–14 tax year
•changed your accounting date last year, but this was not agreed by us, and
you have made your accounts up to the same date this year (if you changed
back to your old date, this is not a change of accounting date).
Changes of basis period – special rules which apply if you
change your accounting date
The following rules will apply.
•If your accounting date in 2013–14 is more than 12 months after the end
of the basis period for 2012–13, your basis period is the period between the
end of the basis period for 2011–12 and the new accounting date.
For example, the basis period for 2012–13 ended on 31 May 2012 and the
new accounting date is 31 August 2013. Your basis period is the 15-month
period 1 June 2012 to 31 August 2013.
•If your accounting date in 2013–14 is less than 12 months after the end of
the basis period for 2012–13, your basis period is the 12 months ending on
the new accounting date. For example, the basis period for 2012–13 ended
on 31 December 2012 and the new accounting date is 31 July 2013. Your
basis period is the 12-month period 1 August 2012 to 31 July 2013,
see Overlap profits, on page 12.
If you are unsure if your accounting date has changed in line with the above
rules, contact your tax adviser for help.
Conditions for change of accounting date
The following conditions apply if you want to change your accounting date
from year four onwards.
•You must tell us about the change in your tax return, and send it back by
the relevant filing date.
•The first accounts, to the new accounting date, must not be more than
18 months, and you must tell us why you made the change.
•If you changed accounting date in any of the previous five tax years,
this change must be for a genuine commercial reason (obtaining a tax
advantage is not a commercial reason).
Page 11
What to do if your basis period is not the same as your period
of account
If your basis period for 2013–14 is different from the period, or periods,
to which you make your accounts up, you must work out your profit by
adding together and/or dividing the periods for which you have accounts.
For example, your business started on 6 April 2013 and your basis period
is the 12 months to 5 April 2014. Your accounts are for the three months
to 30 June 2013 (profit £4,500) and the 12 months to 30 June 2014 (profit
£24,000). So your basis period covers three months of your 2013 accounts
and nine months of your 2014 accounts.
The profit for the basis period will be: £4,500 + (280/365 x £24,000) = £22,910.
Accounting dates between 31 March and 4 April
The basis of assessment for the tax year in which a business starts (year one)
is usually the profits arising in that tax year. But if a new business chooses an
accounting date between 31 March and 4 April, the accounts for the opening
years are looked on (unless you elect otherwise) as being made up to 5 April.
This means that the profits of the account to 31 March or 1, 2, 3 or 4 April
each year will be taxed as though they were for the period to the following
5 April.
For businesses which start in the period 1 to 5 April, the taxable profits for
year one will be zero. This will not affect anything else which depends upon
the date, or tax year your business starts.
You may also treat a change of accounting date where the new date is
31 March or 1, 2, 3 or 4 April as though it was a change to 5 April.
All previous overlap profits will then be deductible in the year that the
change takes effect.
Talk to your tax adviser if you need more help.
Overlap profits
You may find that your basis period for 2013–14 overlaps with the basis
period for 2012–13.
Such overlaps can happen in the first three years after a business starts up or
in a year in which there is a change of basis period. For example, if
your business started on 1 January 2013 and your first accounts are for the
12 months to 31 December 2013, your basis periods are:
•2012–13, 1 January 2013 to 5 April 2013
•2013–14, 1 January 2013 to 31 December 2013.
The period of overlap is 1 January 2013 to 5 April 2013. So, if the profit for
the 12 months to 31 December 2013 is £12,000, the overlap profit is
(96/365 x £12,000) = £3,156 (over 96 days).
If your basis periods for 2012–13 and 2013–14 overlap, keep a record of
both the overlap profit and the overlap period and any overlap profit you
have carried forward where you have not yet claimed overlap relief.
Page 12
AContacts
Please phone:
•the number printed
on page TR 1 of
your tax return
•the SA Helpline on
0300 200 3310
•the SA Orderline on
0300 200 3610
for helpsheets
or go to hmrc.gov.uk/sa
Overlap relief used this year – box 69 on the Self-employment
(full) pages (or box 13 of the Partnership pages)
You must take off (as overlap relief) any overlap profits which arose in
2012–13 or earlier years when working out your taxable business profits for
2013–14 if:
•you sold or closed down your business in 2013–14 (put all overlap profits
brought forward in box 69 on page SEF 4 (or box 13 if you are filling in
the Partnership pages)
•your basis period for 2013–14 is more than 12 months long because
you changed your accounting date. The amount of overlap profits
allowed as overlap relief is in proportion to the length of your basis
period that exceeds 12 months and the length of your overlap period
from earlier years.
For example, you have overlap profits of £5,000 (over five months) from an
earlier year. You change your accounting date. Your basis period is
14 months. There are five months of overlap profits available. The relief is in
proportion to the number of months by which the basis period exceeds
12 months (that is, two months) and the length of the overlap period (that is,
five months).
So, the overlap relief is:
/5
2
x £5,000 = £2,000.
The balance of overlap profit, £3,000 (over three months), is carried
forward. You can claim this as overlap relief in a later year.
Capital allowances and balancing charges
When working out your business profits don’t take off the cost of buying or
improving items such as a car, equipment or other tools that you use in your
business or the depreciation or any other losses which arise when you sell
them. Instead, you can claim tax allowances called capital allowances. You
take off the allowances from your profit to find your taxable profits, or add
them to your losses to get your allowable loss.
Usually, anything you use that has a useful economic life of at least two years
may qualify for capital allowances.
Capital allowances do not apply to items that you buy and sell as part of
your trade; these items are included in business expenses.
If you have capital allowances, an adjustment, known as a balancing charge,
may arise when you sell an asset, give it away or stop using it in your
business. We add the balancing charge to your taxable profits, or take them
off your losses, in the year they occur.
If you are using the cash basis, you can only claim capital allowances on
cars. The cost of all other equipment and vehicles is an allowable expense in
working out your business profits.
For more information go to Helpsheet 252 Capital allowances and
balancing charges.
Losses – terminal relief
If your business stopped in 2013–14 and you made a loss in your final
12 months of trading, you can claim terminal loss relief against your profits
from the same trade profession or vocation taxed in 2013–14.
Page 13
If any terminal loss remains you can use the balance against your profits
from the same trade, profession or vocation for up to three earlier years.
The time limit for your claim is 5 April 2018.
For more information go to Helpsheet 227 Losses.
How to calculate your terminal loss
The amount used for unused overlap relief in the following examples
is £2,000.
Twelve month period
The terminal loss is the allowable loss plus any unused overlap relief.
Example 6
Your 2013–14 accounts cover a period of 12 months.
Allowable loss (for 12 months)
£4,000
Plus
Unused overlap relief
£2,000
Terminal loss to claim
£6,000
More than 12 months
The terminal loss is a 12-month proportion of the allowable loss, plus any
unused overlap relief.
Example 7
Your 2013–14 accounts cover 15 months, and your allowable loss is £5,000.
Allowable loss £5,000 divided by 15 months x 12 months = £4,000
Allowable loss (for 12 months)
£4,000
Plus
Unused overlap relief
£2,000
Terminal loss to claim
£6,000
Less than 12 months
The terminal loss is the loss from 6 April 2013 to the date the business ceased
trading, plus any unused overlap relief, and loss for the 12 months up to
5 April 2013.
Example 8
Your accounts cover the eight months: 6 April 2013 to the date the business ceased
30 September 2013 (six months), and 1 February 2013 to 5 April 2013 (three months trading)
from the previous accounting period.
Allowable loss: 1 February 2013 to 5 April 2013 £2,000
Allowable loss: 6 April 2013 to 30 September 2013 £6,000
Plus
Unused overlap relief
£2,000
Terminal loss to claim
£10,000
Page 14
AContacts
Please phone:
•the number printed
on page TR 1 of
your tax return
•the SA Helpline on
0300 200 3310
•the SA Orderline on
0300 200 3610
for helpsheets
or go to hmrc.gov.uk/sa
If you have already claimed relief for any part of the losses, then you must
reduce the terminal loss by the amount of relief already claimed. This is
because you can only claim relief once for each £1 of loss.
Your terminal loss must be set against any profits (after deducting losses
brought forward) from the same business taxed in 2013–14. If these are
zero, it must be set against profits from the same business taxed in 2012–13.
Once reduced to zero, any balance of the terminal loss must be set against the
profits of the same business taxed in 2011–12. Finally, if there is still
a balance, this must be set against the profits of the same business taxed
in 2010–11.
Put the amount of terminal loss relief you are claiming against your 2013–14
profits in box 74 on page SEF 4 or box 17 on the Partnership pages. This is
in addition to any other losses you are bringing forward from earlier years;
don’t count the same loss twice.
Put the total amount of terminal loss relief for 2010–11, 2011–12, or
2012–13 in box 79 on page SEF 4 or box 23 on the Partnership pages.
Give details of the amount carried back to each year in box 103 ‘Any other
information’, on your Self-employment (full) pages or in box 19 ‘Any other
information’, on your tax return.
Partners’ trading or professional profits
The basis period and overlap rules are set against your share of the
partnership’s trading and professional profits (or losses) as if that income had
arisen from a trade you carried on as a sole trader.
This starts on the date you became a partner (unless you had carried on
the same business yourself), and stops on the date when you ceased being a
partner (unless you had carried on the same business yourself, afterwards).
Example 9
The partnership started trading on 1 October 2011 and makes up its account to
30 September. You stopped being a partner on 31 December 2013.
Your share of trading profits will be:
year ended 30 September 2012 year ended 30 September 2012 (A)
year ended 30 September 2013 (B)
£12,000
£18,000
£7,000
Your basis periods for each fiscal year and the overlap relief to which you are entitled are
as follows.
2011–12: 1 October 2011 to 5 April 2012 profits £6,000
2012–13: 1 October 2011 to 30 September 2012 profits £12,000
(Overlap period 6 months: overlap profits) (C)
£6,000
2013-14: 1 October 2012 to 31 December 2013 profits (A + B) £25,000
Minus
Overlap relief (C)
£6,000
Taxable profit (D)
£19,000
In the Partnership pages, enter
•£18,000 in box 8
•£7,000 in box 9
•£6,000 in box 13, and
•£19,000 in boxes 16, 18 and 20.
If you are unsure how the basis rules apply to you as a partner, ask your
tax adviser for help.
Page 15
Other partnership income
If the partnership carried on a trade or profession in 2013–14 the basis
period depends on whether the partnership income had tax taken off.
You are treated as a ‘notional’ business (sole trader) for any untaxed
partnership income. The same basis period and overlap rules applied to your
share of the partnership’s trading or professional profits are applied to the
‘notional’ business.
For this purpose you treat the ‘notional’ business as commencing on the date
you became a partner and ceasing on the date you stopped being a partner.
If you are entitled to overlap relief from your ‘notional’ business, it is first set
against any other untaxed income (regardless of the source it came from) and
any balance given as a deduction against any other income of that year.
For your share of the partnership’s ‘taxed income’, your basis period is the
period 6 April 2013 to 5 April 2014.
If the partnership did not carry on a trade or profession in 2013–14, the basis
period for both ‘untaxed’ and ‘taxed’ income is 6 April 2013 to 5 April 2014.
These notes are for guidance only and reflect the position at the time of writing. They do not affect the right of appeal.
Page 16