Can any tax accountants help please?

[BorgQueen]

If, when using cash basis accounts for Self assessment, sole trader DH uses Annual investment allowance for his newly bought van and this takes him to a loss come April (he is just about to go self employed) , does the AIA negatively affect the loss carry over or is it just a case of all losses combined (including AIA amount) get carried forwards?

I’ve accounted for his purchased tools/equipment as normal expenses rather than capital allowance as I believe that’s correct under ‘cash basis’.
I’ve read the right hmrc manual bit but can’t see the relevant info.

The AIA's (check whether you can claim the super-deduction, rather than straightforward AIA's, as you may be able to claim 130% of the cost as a tax deduction rather than 100%) are deducted from the trading results of the business.

For example, if your DH had £35,000 of income and £10,000 of regular costs, before the van, he'd have a profit of £25,000.

If he then bought a van for £15,000 that was eligible for the superdeduction, you'd then deduct £19,500 from the £25,000, leaving £6,500 taxable.

If he'd made a loss before CAs originally of, say, £5,000, then with the CAs included it would be a loss of £24,500 (i.e. it adds together). If he had a profit of, say, £5,000, the £19,500 would take it to a loss of £14,500.

He'd then be able to carry those losses forward and offset them against profits in a later year (i.e. you don't lose them, and you don't have to pay any tax on the year the losses were made). It doesn't matter if you're on a cash or accrual basis, it can still be offset.

Please note - if the van is second hand you can't claim AIA's - you'd have to just claim regular Writing Down Allowances (WDAs).

Also, further point to note, if you do claim the superdeduction, as and when he sells the van further down the line, he'd have to account for 130% of the sales proceeds through his tax return to compensate. This is only an issue if you're likely to sell something for more than you bought it for, in which case you should just claim AIA's, rather than the SD, but in most cases assets depreciate, so you're not worse off, but it's just a little technical point that I suspect will get overlooked and HMRC will take great delight in finding.

You can’t claim Super deduction if you are self employed and you can claim AIA on a second hand van.

I should add as long as it’s not from a connected person.

Thanks Piggy - I was just coming back on to say this as I was looking at something else for my work that confirmed the same re the super deduction (I do more corporate tax rather than personal as you can tell!)

Thanks all, I knew super Deduction can only be used if incorporated.
He’s definitely staying as a sole trader and staying under the VAT threshold, 25 hours a week is his plan with 7 weeks off, he’s 56 and wants to slow down.
It’s good to know he can carry everything over regardless of accounting basis.
He’s already used all his personal allowance via paye this tax year, he took a 3 month contract while he’s been training/studying for his Gas safe certification, so losses would be carried forwards.
He starts self employment in a fortnight, customers already waiting, assuming he passes his final exams so will have 5 months to account for. His taxable self employed income could be anything from £5k-£20k and he will have approx. £7k of expenses, van included.
He will only need 5 hours work a week for 20 weeks to put him in profit so it should be easily attainable, 10 hours a week will give him £15k turnover/£8k taxable profit.
I’m thinking of using cash basis for book keeping but am open to using traditional accounting if it’s more beneficial? He has freeagent accounting software as part of his business account.
Come April he will also be paying me - under the LeL so won’t need to register as an employer - as I will then have no other income.
Will I have to do self assessment for my earned income? I know it will be 2024 but I’m curious !

Its not clear from your post if his sole trade is a new business, but would he not be best doing a loss carry back claim against trade income. In standard years you can go back one year, but 2021 and 2022 you can go back 3 years (covid loss relief). Look at where he is the higher tax payer (carry back he’d get the cash now).

If the income from his employment is larger than the PA he could also do a sideways claim against other income in current year.

If it is a new start business you can also do early years loss relief against PY(s) total income.

if you have no other income have you claimed the marriage allowance?

I would recommend you get an accountant, the fees are probably about £300-400 for a small sole trade like this and they would be able to advise you properly and make sure you are doing everything efficiently and sort the loss relief in the most efficient way.

Also income tax rate should be reducing in 2022/23 so would get relief at a slightly higher rate by carry back. Carry forward is always the last relief to consider because you have to wait for the cash benefit. Only exception would be for corp tax where rates are (now again) increasing so carry forward would get relief at up to 26.5% in the marginal rate vs 19% now.

Yes, brand new business. His 3 month contract took him £3k over his personal allowance.
To use sideways relief etc. I believe we can’t use cash basis?

he’d rather carry forward any loss so he has less tax to pay for his 23/24 tax year, he’ll likely be a higher rate taxpayer then, although he could then claim extra tax relief on his Sipp contributions so it’s swings and roundabouts.
Hopefully he won’t have a trading loss but I just wanted to cover all bases.
I don’t think it’s worth claiming marriage allowance, he was claiming it and then had an extra tax bill for 20/21 as he’d gone into higher rate tax, he hadn’t quite raised his pension conts enough to offset it.

His tax still isn’t quite right but hopefully will be sorted out soon, hmrc either haven’t received his p45 or haven’t updated his GG account yet , as he’s still showing as employed by the Umbrella Co. that dealt with his temp contracting pay.

I think we’ll definitely need an accountant by the sound of it.

I don't understand why you are concentrating on 'losses' their will only be a loss to carry forward if he earns less than the £7K you estimate as expenses. As you've said he will only need to work 5 hours a week to break even and so should be very easy, he is most likely not going to have a loss to carry forward.

I would speak with an accountant and get advice that will apply from them. My husband uses a small family firm who are excellent and it costs £80+vat for his return and they are on hand all year! Its also worth thinking ahead for the MTD changes that are coming post April 2024 for sole readers.