Tax question - losses

[greedychops]

Just a quick one incase any of you are clever with tax. If you make a loss in your first year of trading, is it better to off set it against income from a previous year, or carry it forward to reduce tax liability the next year?

I would have assumed carry it forward, but there seems to be a lot of questions about it in the tax return?

Guess it depends. If you carry it forward, you have to use it against the first available profits from the same trade.

So say you paid tax at 40% last year and will pay tax at 20% on your profits next year, then if you carry it forward you're only getting 20% but if you carry it back then you'd get 40%.

Of if the opposite is true then you'd get more by carrying forward.

If you make a small profit next year then you could end up setting losses off against income which would be below the taxable level anyway..... so you'd save 0% and waste your losses.

Another thing to consider is that if you carry it back you'll get the money straight away, if you carry forward then you'll have to wait.

So the answer is that it depends on your particular circumstances, but usually best to carry back against previous income.

HTH

That helps a lot -thanks very much. I don't expect I will earn above the personal allowance next year, although hopefully willthe year after, so I guess it would be best to go backwards.

Thanks very much.