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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I am launching a startup but from my previous job I

Customer Question

Hi!
I am launching a startup but from my previous job I will have taxable earnings in this year.
The company is expected to make losses within the 12 months of launch. I now launched a limited company (already in July) but haven't done any business with it yet, so wouldn't mind changing the legal form. I initially had a business partner (50%), but from now on will be alone and therefore could do other legal forms if they make more sense.
Is it more tax efficient to launch another form of company with then being able to deduct company losses from tax?
And can I deduct startup investment costs somehow from personal taxable income? I read through the SEIS and understood that your own investments are not tax deductable, but is there any scheme for people who start a limited company to deduct their investments from personal income tax on salary of any non-related job?
Thank you!
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi. You cannot offset limited company losses against personal income as you may be aware. If you start a sole trader business, then trading losses can potentially be offset against other sources of income in the tax year of the loss or the previous year or both in any order. In addition, in the first four years of trading, you can carry losses back three years for offset against income you had in those years, earliest year first. Any trading losses you carry forward can only be offset against profits from the same business, not other sources of income. Take a look here for more information on trading losses. If you put money into your own limited company in exchange for shares, you won't get tax relief against your other income for that investment. If you borrow from the bank to lend your limited company money, you can claim tax relief for the interest you pay. Any interest you charge your company will be taxable. If you put money into a sole trader business, it will be simply be used to settle expenses or buy equipment or stock. You can claim your expenses against business income and get capital allowances against business income for capital expenditure. Trading losses may be offset against other income as described above. The business has to be run with a view to making a profit for any trading losses to be deductible. I hope this helps but let me know if you have any further questions.
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15884
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
TonyTax and other Tax Specialists are ready to help you
Customer: replied 1 year ago.
Hi! Thanks a lot, very helpful. So I should be a sole trader. Do you know if it is possible to change my limited into a sole trader business and then back in about a year or two when I start making profits or do I need to form a separate sole trader business and leave the limited "empty" for the next years, until I make profits and then bring in my sole trader business there so to pay less tax?
Expert:  TonyTax replied 1 year ago.
If the company has never been used, then you could leave it dormant until you are ready to use it or close it down. I'd start a new sole trader business.
Most people starting out in business for themselves start as a sole trader and if things take off, they may incorporate later on. A limited company tends to have higher annual compliance costs and larger penalties for non-compliance than a sole trader so it makes sense to start small.

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