Any accountants available for advice please?

[Miamoo134]

I have a small business/hobby and I'm a sole trader. I do have an accountant however km struggling & anxious until I get an answer

Accounting stuff really does confuse me but I will explain and try keep it short and sweet.

I've had a business which is basically making nil profit since 3 years. It is a side thing but it's a franchise which I'm paying for in monthly payments. The payments end next year. So when totalling up incoming and outgoing expenditure with these monthly payments, it is definitely a loss for now!

Due to life circumstances which i wont go into ive had to pause from focusing on the business for now. I had my drafts done for accounts and I was sent am email saying that basically am I expected to make a profit next year as hmrc can declare company unfeasible? What does that even mean? What are the consequences if they do that? I'm stressing, had a LOT on and it doesn't sound very good to me

Thank you x

I just commented on your other thread but I’ll copy and paste here too!

Basically if you haven’t made a profit in a few years it will look to HMRC that you aren’t actually trading with a profit seeking motive and it’s more like a hobby to you.

However - there are no set timescales for this (unless you are a farmer or market gardener) and to me 3 years isn’t long enough, I’d go with more like 5 years. The clock will re-set once you make a profit on paper. It would be on HMRC to prove there is no profit seeking motive.

The only real consequence is that you wouldn’t be able to offset your losses against other income (if you have any).

Here’s a useful article for explaining but I’d say it’s worth a call to your accountant to explain the ins and outs, that’s what you pay them to do! www.taxinsider.co.uk/is-it-a-trade-or-a-hobby-ta

You're recording a loss for the franchise against your self-assessment every year? And this is in addition to the income you're declaring from other sources?

Basically, HMRC will get suspicious that you're not really running that business at all and that it's a fiddle. It has to be a genuine business to get the benefits of being a business.

But why are you still paying the franchise fee if you're not running it as a business, aren't focussing on it, and it doesn't sound like you plan on focussing on it next year either?

@DogInATent yup okay that makes sense

With regards to the last bit - I am making sales but up against the franchise cost it is still a loss I have to pay for the franchise now regardless. That will be paid off next year then the costs will massively drop. I have been making profit but not nearly enough against the outgoings

I've also had a baby and 2 major surgeries and pending for 2 more major surgeries plus one minor one in the next 12 months. This along with being a new mum, working a day job etc it is just just something I'm learning to juggle for now. Goal is to make profit. However when the franchise is paid off, I should definitely be making more than the monthly costs of the business as that is around £99 a month. Hope that makes sense. I'm bad at wording this stuff >.<

@Miamoo134 do you mind saying which franchise it is? I assume you're paying off a set-up fee in the initial years of operation.

I'd go back to your accountant and just check what they're telling you. They're covering themselves professionally by notifying you of the potential outcomes if things continue as they are. You may have more leeway than just three years, but there is a limit to how far you can push a loss making business before arousing suspicions. And as you're doing this as a sole trader you likely have fewer options.

If your franchise business has never made a profit, then you really need to check how your accountant has been accounting for it.