There is currently a consultation underway, delivering a cap on income tax relief.
People may think that this only applies to High Net Worth taxpayers, as there was a lot of publicity relating to the aspect on charitable giving – however there is in particular one point that could be very relevant to the self-employed.
Both in the early years of a business as well as when it has been established, there is the possibility currently of offsetting any losses in the year against general income without limit as long as the business has been undertaken on a commercial basis (so-called ‘hobby businesses’ do not qualify.)
It’s something I’ve seen with several of our clients – they may be employed as well as self-employed, perhaps whilst they build up the business.
If there is a loss on the self employment it can be set against the employed income and potentially a tax refund can be claimed. However there are proposals that, from April 2013, the total loss allowed would be restricted to £50,000 or 25% of their income – whichever is greater.
This could have a significant effect on the self-employed, so I will be following the consultation and will report further with updates. The consultation ends on 5th October 2012, and draft legislation is expected to be published in the autumn.