Any accountants around for advice?

[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 on Monday.

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

Anyone at all please?

Bumping for you OP, but I'm afraid I don't know. You could try reposting in Legal, which is more active than this board.

@DonnaHaywood thanks soo much for trying! I will try Legal instead :) I have a feeling I did post in the wrong place!

OP, I’m a tax adviser.

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

@PippyPip thank youu for your swift reply!

I'm definitely in this to make profit (one day) but amongst having had a baby just over a year ago and 2 major surgeries life has been all over the place!

But also I'm essentially paying for a franchise and that will all be fully paid off next year (phew). After that my monthly costs will massively drop so my expenditure may look way lower on the business? Eventually itll cost me around £1200 to run the business. Any profit I have made is literally still minus against the expenditure but I'm hoping as I pick up in life again I will make start up my sales again and it'll be over the business cost overall!

I'm hoping after that it won't be so bad. But does it mean hmrc can shut it down? :( I've invested a lot still and if they do that I will shatter. I do love the work I do even if it has been a small amount of income and I have taken a hit for this

£1200 per year to run the business** @PippyPip

No HMRC can’t shut anything down, the worst they would do is restrict losses on your tax return and that’s IF they opened an enquiry which doesn’t happen too often.

IMO it’s not very fair from your accountant to say HMRC will look at the business as unfeasible after only 3 years but def call to explain everything to them because they are the ones that know your numbers!