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I live in the UK and work a day job, but I also have a small freelance income, for which I file a tax return.

The work I do demands that I have access to fairly powerful computer hardware, so buying a new rig is a legitimate expense that I can count against tax. This year, my earnings were down a little and I'm considering spending a lot on new hardware for future proofing.

So it's possible I will end up spending more than I actually earned.

If I file a UK tax return where I have spent more than my income, does anything happen to the excess? Am I allowed to count it against the following year's tax, or is it simply "lost"?

  • How are you freelancing ? Ltd ? Umbrella ? – DumbCoder Feb 15 '16 at 11:12
  • @DumbCoder not sure I understand. I'm working as an individual, declaring income in addition to PAYE. I don't own or am registered as a company of any kind. – Bob Tway Feb 15 '16 at 11:17
  • If it's hardware, does the UK have the concept of amortizing the cost over the normal lifespan? IE $1000 computer, 5 year lifespan, so $200 is allocated to each tax year for it? (Though if you're cash basis, this may not be possible.) – Joe Feb 15 '16 at 16:23
  • @Joe I have no idea. That's the sort of thing I'm hoping to find out :) – Bob Tway Feb 15 '16 at 16:28
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    @MattThrower You are a 'Sole Trader'. You can carry losses / claim relief against profit from the previous year (and further, but there are limits). – Michael Feb 17 '16 at 8:46
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If you make a loss as a sole trader then you have several options.

  • If you have other income, such as employment, then you may be able to reduce or reclaim some of the tax paid on that via PAYE.

  • If you are liable for capital gains tax in the same year you may be able to offset the loss against this.

  • You may be able to use the loss to reclaim tax paid in previous years.

  • You can carry the loss forward to offset against profits from the same trade in later years.

Your exact circumstances will determine how many of the above options apply to you; if more than one applies then you can choose which to use.

More information can be had from HMRC - at the time of writing their helpsheet HS227 is the place to start.

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