Still in loss so why taxed on single-year profit?

Still in loss so why taxed on single-year profit?

10:52 AM, 27th June 2016, About 7 years ago 14

Text Size

I have submitted my tax return (SA100/SA105 etc) for 2015-16, which is the first year for which I have made an ‘in-year’ profit (around £5k) – so that’s the number in Box 38. However, this has really only reduced my cumulative losses (from brought-forward £20k loss up to April 2015, i.e. the Box 39 figure, to become carried-forward loss of £15k at April 2016, i.e. the Box 43 figure). So that’s still a zero in Box 40, “Taxable proifit for the year”.losses

Now, I always thought that I would not start paying tax on property profits, until I started to make a CUMULATIVE profit, i.e. after offsetting losses against profits, for all years starting from the first year – NOT merely the first time an in-year profit occurred [unless that had wiped out all the cumulative, brought-forward losses, which is not the case here].

HOWEVER, I am also an employee; and I have just received an amended tax code for the current year, which treats this £5k (the Box 38 amount) as an amount to be taxed over 2016-17. The HMRC said that it only looks at one year’s figures at a time; so I am now confused as to (a) what is the point of keeping track of past losses anyway if HMRC are NOT letting us offset these against future profits; and (b) why is Box 40 so misleadingly labelled as “taxable profit”, if the profit that they ACTUALLY tax us on is a completely different amount?

No doubt I am missing something here, so I would be most grateful if someone could explain how this is ACTUALLY supposed to work.

Many thanks, folks.



Neil Patterson

10:54 AM, 27th June 2016, About 7 years ago

Hi Adrian,

Rental losses should be able to offset against future rental profit, but not against your PAYE income or Capital Gains, which is where I think the confusion is coming in.

Have you spoken to HMRC?

Adrian Brown

13:26 PM, 27th June 2016, About 7 years ago

What has happened is, they have totally ignored all past losses, and simply adjusted my Tax Code DOWNWARDS by the £5k, so that I will now be paying tax on this £5k last-year-on-its-own "profit", on top of the tax from my employment income, all through PAYE.

So from my standpoint, the confusion is that I thought I didn't have to start paying tax (on property income) until I started getting into profit AFTER offsetting previous year's loss; whereas HMRC are imposing on me the 'debt' of taxation upon my first 'profit', IGNORING any such offsetting effects; and the way they are doing so is not by demanding a payment, but by extracting this tax amount 'forcibly' from me via PAYE.

Yes, I phoned the helpline, but the reply was "Oh, we only look at the most recent year of property profits, to assess what you're supposed to pay tax on". So I asked, "So how are previous losses taken into account?", and the reply was, "You declare what tax you paid, in the next year's return.". So I've had another look, to see if I could make any sense of that; and still can't work out how this is supposed to happen / work. Hence my posting the question.

So either there has been some miscommunication, or one of us (me or the HMRC person) is the idiot; I don't mind if it's me, as long as someone can explain why!

Thanks (in anticipation) again.

Paul Green

19:53 PM, 27th June 2016, About 7 years ago

Hi Adrian, my charted accountant filed my tax return for 2015/2016 and confirmed I had no tax to pay on a small profit as like you I m carrying over losses from previous years....

I not a tax advisor, but I would suggest you speak with a charttered accountant, they can save you a small fortune for little outlay.

I have been with mine for 18 years, & although I can submit my own return I don't.

He provides me with bound copies every year, basically a balance sheet of the property portfolio.

I know this does not asnswer your question directly; however it does show the importance of having a highly trained accountant on you side, who would write to HMRC on you behalf and put them right. As I believe thier the stupid ones as you put it and not you....

Adrian Brown

20:58 PM, 27th June 2016, About 7 years ago

Reply to the comment left by "Paul Green" at "27/06/2016 - 19:53":

Thanks Paul, it does sound like you are confirming my understanding of the rules. But I have indeed been starting to think that I may have to get an accountant - not so much to work out the numbers, but to do any 'professional arguing' with HMRC for me!


11:50 AM, 28th June 2016, About 7 years ago

On the facts presented, you are right and whoever adjusted your tax code and answered the HMRC Helpline are completely wrong. I've been offsetting my small annual profit against accumulated lossess for years without problems. Get an accountant to look at your SA returns and write a stiff letter of complaint! Perhaps he or she will be able to suggest some improvements to your deductions at the same time, to help recoup their fee.

Neil Harvey

23:41 PM, 30th June 2016, About 7 years ago

I think the point is you are only overpaying until you do your next tax return. At that point your taxes due will be calculated based on what you earn this year, offsetting past losses against is years property profits, and you will know how much tax you should have paid. You will probably then end up with a tax rebate because the tax code adjustment will have seen you pay too much tax, assuming you do not have other tax liabilities crop up this year.

I had the wrong tax code last year, even into this year before I noticed, due to job changes. It all sorted itself out with the tax return and I got a nice rebate. Lost out on my mortgage of choice though as too much tax was being taken from paye and bank refused to adjust for it.


9:35 AM, 1st July 2016, About 7 years ago

You need to check your return and make sure you filled in the "Losses Brought Forward" box. It's all done automatically by their software and I have never had this problem. If you omitted to fill it in you will need to write to them and explain. It's an easy one to overlook as it's on a page all by itself. I think there's a box to elect to use the brought forward loss as well.

Adrian Brown

10:10 AM, 1st July 2016, About 7 years ago

Hello Puzzler, thank you for your observation. I did indeed fill in the "Losses brought forward" box [39 on SA105 sheet] - with the £20k figure. With the in-year £5k profit (box 38), automatic calculations give correct figures (£15k = £20k - £5k) for [box 43,] "Losses carried forward..."; and zero (because £5k - £20k < 0) in box 40, "Taxable profit for the year". Hence my own puzzlement - why have HMRC used the in-year profit figure, £5k, before the offsetting, instead of the "Taxable profit" figure, £0, as the amount on which to tax me?! Thanks.

Adrian Brown

10:19 AM, 1st July 2016, About 7 years ago

Reply to the comment left by "Neil Harvey" at "30/06/2016 - 23:41":

Thank you for that, Neil - this does seem to align broadly with what I was told by HMRC helpline, but still can't understand. Would you please explain the mechanism by which I communicate, through my tax return next year, "Hey, you've already wrongly taxed me on this £5k from 2015-16"? I can't see a box for it on the SA100/SA105, so I would be really grateful to understand how this actually works by reference to the tax return. As it is, I can't see what's to stop the same thing happening next year! Many thanks.


12:13 PM, 1st July 2016, About 7 years ago

In that case, they have made a mistake. The simplest way to resolve is to write to them or try phoning again. You have me worried now, I need to check my PAYE coding!

1 2

Leave Comments

In order to post comments you will need to Sign In or Sign Up for a FREE Membership


Don't have an account? Sign Up

Landlord Tax Planning Book Now