No you need to be carrying on business with a view to a profit to set off losses.
This is correct, although there is some wriggle-room in “with a view to”. It will take HMRC a while to ask themselves whether consistent annual losses obviously mean you’re taking the piss.
There is (or at least was) an allowance in the Australian system for a small income from hobbies that didn’t attract personal tax, that’s the only one thing related to this I’ve ever heard of.
Usually when someone ponders a way of paying less tax it’s either a total nonstarter or has been dreamt up before and the loop closed.
OP – we’re all doing this – you’re just the last to the join the party! What do you think all the N+1 threads are about 🙂
In a sense theres nothing stopping you filling in a tax return stating exactly what you state in your example in that regardless of what HMRC’s ‘view’ of the activity is, its quite rare in any individual case that they actually look at what you’re doing – I’ve been filing tax returns for 20 years (and vat returns for 8 years) and to date everything has totally been taken on trust. When you file a return you’re only sending them some numbers they don’t know if you’ve bought bricks or bikes, they don’t know if you’ve invoiced for sales and services or won a prize. So the worst that could actually happen is at some date in the future the could actually look, decide ‘thats not allowable expenses’ and ‘this activity isn’t business’ and demand the tax back.
But what you are suggesting is similar to a situation that people in my industry / sector face – I make a a fair portion of my money as an artist and particularly where artists have a lower turnover or a lower or negative profit from turnover (perhaps they’re starting up – it takes a long time to get a career of the ground, about20 years for me for art to actually pay the rent and bills). The problem is plenty of people make art as a hobby and there are quite a view instances of the HMRC refusing to recognise artists as businesses and not allowing expenditure related to their practice because they don’t like the look of their numbers.
The idea get’s mooted a lot in Sailing, mostly because if you have a small business (lets say Orange Mountian Bikes) then it would seem obvious to “sponsor” your boat, there’s a great big sail to cover in logo’s and sails aren’t cheap!
But HMRC are way ahead of the game, you can indeed sponsor a sailor/boat but it has to be completely separate to you. So you can use it for corporate events, publicity and anything else, but you can’t sponsor your own boat from company funds. Most of the examples you see on the Solent on any given Saturday are either actual sponsorship from outside the crew or the owner is paying for the boat from his income after tax and then using it to create ‘free’ publicity.
I’d imagine given that, that trying to set yourself up as a commercial team would get laughed at.
Otherwise you could just pay for your company van out of the advertising budget, and avoid company car tax.
i recently relegated my self employment (music) to a hobby and took up a proper job. Since then i’ve made a few hundred quid off it, but spent more than that on studio costs and some shiny new synths that i can finally afford now that i’ve got an actual salary.
So on the one hand, perhaps i should file a tax return since i have some income from it. But on the other, since I’m highly likely to make a loss every year, it wouldn’t feel quite honest!
If you ran the business as a Ltd company you’d be doing an annual company return and with no profits you’ve got no corporation tax to pay. Though you’d be a director of the company so still have to do your personal tax return. If you take money from the company then that’s declared as income etc so tax to pay on it. If you purely use company funds on purely business expenses then there isn’t (other than VAT, unless you’re VAT registered – but then I doubt you can charge VAT on race winnings 😀 ).
A lot of faff for a hobby really, though does keep business separate from personal.