Q: I intend to start my own business in psychotherapy/counselling. This requires several years training prior to charging clients. Additionally, I have to gain experience through not-for-profit client placements. This means i will incur significant costs. I've budgeted for this, but wonder if I'm managing it tax efficiently. Would I be better off starting the business up now, though it will achieve no income, and bear these costs as "losses" to the business in the next 2 years? Can this then be offset against income once I'm fully trained?
Sep 08 2006
Answered by: Clive Lewis Ask a question
The general answer to your question is yes – 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. In your specific case you will spend most of your time training.
ou mention gaining experience through not-for-profit client placements. Will you be recovering your costs? Is there an expectation of profit? Two other points.
If you were to start your business now, what would your costs be? Where would your business operate from? You will need to establish its trading address. What other costs might you incur if you set up the business now? Secondly you need to consider the rules of the body you are seeking to qualify with.
Many bodies’ rules do not allow students to “practice” i.e. offer their services to the public until they are fully qualified. You should check this aspect. It is never good practice to set up or run an operation merely for the tax benefits it might bring. These wider factors should also be considered.
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.
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