Employed and self-employed

I am employed full-time but would like to set up my own part-time card making business which is likely to generate a loss- at least in the first year. Can I offset the loss against my employment income?

1st August 2012

Potentially, however, if you are already employed full-time, it may be questioned how ‘genuine’ this business is- and if it is instead, more of a hobby. Losses generated from a hobby could not be offset; there has to be a commercial motive behind the activity, i.e. you must be looking to generate profits.

The sorts of factors to consider whether a trade exists are:

  • Is there a profit-seeking motive?
  • Are there a significant number of transactions?
  • Are there systematic or repeated transactions?
  • Are the transactions similar to those occurring in a trade that already exists?
  • How are the ‘sales’ made? If for example, your goods are being marketed and sold on the internet, then this may indicate a trade exists
  • How long is the interval between the acquisition and the sale of your goods?

It can be difficult to identify whether a trade exists, as the above list is not exhaustive and therefore the particular circumstances of each ‘business’ need to be considered. Consequently I would recommend that you discuss this with your local TaxAssist Accountant before simply offsetting the loss, in order to avoid underpaying tax.

By Jo Nockels

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