Sole Trader - Services & Goods, offsetting tax

The Pontiac

Hi,

I'm a sole trader providing a service for a living. In 2013 I also setup an internet eCommerce store, so two completely different businesses, services and goods. The website took longer than I thought (buying stock, website development etc.), but is now almost ready to go live.

So my question is - can I offset the losses in the 'Goods' (website) business against profits in my service business?

I thought my accountant said yes, but maybe I picked him up wrong. He's now on holidays, so just looking for some clarification.

Thanks.

Alan Shore

As a rule a loss in a trade can be set against profits of another trade of a sole trader in the current year.

The issue you will face is that the purchase of the stock does not create a loss. So it's really the cost of the website.

The Pontiac

Alan Shore wrote: »

As a rule a loss in a trade can be set against profits of another trade of a sole trader in the current year.

The issue you will face is that the purchase of the stock does not create a loss. So it's really the cost of the website.

Cheers Alan.

As most of the cost is the purchase of stock, I specifically asked my accountant this - does the stock count as a loss and he definitely said yes.

I'm afraid you could be correct and it indeed doesn't count. I just thought I could use it as a loss this year, and just pay a higher tax bill next year (2014) when I start selling.

But surely next year (2014) I can carry over the purchase of the stock as an expense, or otherwise I'd have a huge tax bill?

The Pontiac

Think I have it now. Stock is an asset until it goes into 'cycle of sale' and then becomes an expensive. That makes sense alright.

Definitely got the wrong advice from my accountant then.

Taxuser1

Alan Shore wrote: »

As a rule a loss in a trade can be set against profits of another trade of a sole trader in the current year.

The issue you will face is that the purchase of the stock does not create a loss. So it's really the cost of the website.

This isn't nexessarily true. Once you can prove you are trading, then any "trade loss" generated by whatever means can be argued as offsettable against all income.

dm me for any further information you might require. i'm a practising tax consultant.

Alan Shore

Taxuser1 wrote: »

This isn't nexessarily true. Once you can prove you are trading, then any "trade loss" generated by whatever means can be argued as offsettable against all income.
.

Which part are you referring to?

Taxuser1

Alan Shore wrote: »

Which part are you referring to?

i'm wondering why the poster was referring to stock as an asset. the commencement of a trade could be deemed to be once the trader makes approaches to contract for goods for onward sale. once he can show that the intent was to sell but for whatever reason failed to do so, then a trading loss can be created and offset against other income which i think is what the accountant was getting at. I'm not sure why you think purchases, which obviously are a trading expense, are excluded from augmenting a loss on commencment on otherwise ?

Alan Shore

If the OP has other expenses not fit resale besides the website then they would create a loss, no issue with that.

Stock which is purchased during the period in question which remains unsold at the end of the period will not create or augment a loss in the period*.


*(assuming the stock can be sold for more than the OP paid for it)

Taxuser1

that's on the assumption you are applying accountancy inventory standards to a simple sole trader Income and Expenditure account; all that is needed for a start up business I assume. i'm sure i'll cause argument here but an unaudited basic Income and Expenditure for a sole trader's start up might not have the full force of the standards applied - certainly when it comes to filing the standard tax return. perhaps an accountant would argue with me !

Alan Shore

We will have to agree to differ on that point so.

I would never leave the closing stock out, even in an unaudited income and expenditure for a sole trader.

The Pontiac

Thanks again for the advice. I'll be talking to my accountant on Monday, so will see what he says this time. Last time I'm not sure if he understood that I wanted to write off the stock purchase against my other/service business for this year. I'll report back..

smcgiff

Taxuser1,

What are you on about?


How are you trying to create a loss from unsold stock?

You say you are tax consultant? On what basis?

Immy

Alan Shore wrote: »

We will have to agree to differ on that point so.

I would never leave the closing stock out, even in an unaudited income and expenditure for a sole trader.

Agreed, would always include if it's material.

You're only pushing it down the road and potential you'll have bigger taxable profits next year. I hate having to explain to a client that this years tax is higher because last years was lower. I'd rather have both even.

smcgiff

I've deleted a post from Taxuser1 so it cannot be seen that they have been issued with a red card. They will be able to post again in one month.