Q: My business is financed by a cash loan from myself, but I have also spent lots on expenses from my own pocket. This year I will not bring in enough money to pay myself back either the loan or expenses in full. Can the expenses be carried over into the next tax year? By then I will have brought in enough to repay myself.
Sep 06 2006
Answered by: Clive Lewis Ask a question
Expenses incurred in running a business should be recorded in the books or financial records of the business as they are incurred.
If not, it is easy to lose track of these 'out of pocket expenses', resulting in the records giving a misleading picture. However, recording the costs in the business does not mean that it has to repay you straight away. The double entry will be to debit the costs to the appropriate cost account, such as 'Materials' or 'Travel expenses' or 'Stationery', and to credit the cash to your current account.
The business can repay your current account at any time it has the funds available. If your business has incurred a loss, then losses incurred in the early years of a business can be offset against future profits. What is more the trading losses of a sole trader or partnership can not only be carried forward to offset against future profits they can also, in certain circumstances, be offset against other income in the current year or even carried back against income in the previous three tax years.
One condition is that the trade must have been carried out during the period of the loss on a commercial basis with a reasonable expectation of profit during the period or within a reasonable time thereafter. So enter the expenses in the books of the business (or file the records for your book-keeper or accountant, if they keep your records) and the business can repay you when the cash is available.
The ICAEW cannot accept any responsibility for the answers to the smallbusiness.co.uk website. By their nature the questions do not give sufficiently precise and full information to give a personal response. The response is general guidance including where the enquirer might find further and fuller information of relevance to the current enquiry.
Comments