Friday 23rd January 2009 Blog

Tax Help for Losses and Falling Sales

If your client’s sales have dropped and costs have risen, they may be making a loss. This is not a disaster, but they should take action soon to get the best out of the tax system at this difficult time.

VAT

Where their turnover for the last 12 months has dropped below £65,000 they could deregister for VAT. This will not suit all businesses, but if they sell to the public they may gain a competitive advantage by being outside the VAT net.

Loss Claims

Once your client has a definite loss figure from their accounts they can set this against their profits for the previous year to generate a tax repayment or tax reduction. If the current loss exceeds the previous year's profits your client may be able to carry the excess back a further two years, but this depends on when their loss making period ended. They may need to change their accounting period slightly to accelerate the loss relief available.

Tax and Pension Credits

If your clients business is their main source of income, a loss means they may be eligible to receive Tax Credits. Tax credits are particularly valuable for families with children under the age of 16 or who are in full-time education, but single individuals can also claim. Your clients claim can only be backdated up to three months, so they need to make sure they don't delay making their claim. If they are aged 60 or over they may be able to claim Pension Credit. Your clients don't have to be retired to claim this support and it is a much simpler system than Tax Credits.

However your clients trading loss arose, the best policy is to make sure they act quickly to reduce the business tax payments and generate tax refunds. The worst thing they can do is put their head in the sand!
 

Posted by: Bookcert Mentoring Team

Friday 23rd January 2009

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