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Posted Tue, 16 Aug 2022 14:23:39 GMT by The_Atheling
I am not sure if this is the correct forum for this question, or if it should be under business tax. Please bump if appropriate. After being employed for many years, my wife and I recently set up a new business in partnership with each other. We had some pre-trading and year one losses that were reported on the first partnership tax return (2020/21). It was recently pointed out to me that we could have offset the early year losses for the new business against PAYE tax from our last three years of employment (ending years 2018/19 and 2017/18 for my wife and I, respectively). I understand that this is only possible if the new business tax return is on an accruals/traditional accounting basis. Unfortunately, the first return had already been submitted on a cash accounting basis (although I want to restate our year one accounts on an accruals basis, which is more appropriate, as we carry stock). My questions are: 1. Can we amend or resubmit our year one partnership tax return for the business on an accruals basis to claim the early years loss relief on resubmitted personal tax returns? 2. What is the best way of amending/resubmitting both partnership and personal tax returns? Many thanks
Posted Thu, 18 Aug 2022 12:03:27 GMT by HMRC Admin 2

This would be seen as a transitional adjustment and you must make claims in writing for this. You must state that you are leaving the cash basis to move to accounting basis and give the date of change. Include your UTR in your correspondence.

You should send your request to:

PAYE and Self Assessment
HM Revenue and Customs

Thank you.
Posted Thu, 18 Aug 2022 15:29:07 GMT by The_Atheling
Thank you for the prompt reply. I had understood that transitional adjustments are employed when changing accounting methods between tax years. Can you confirm that this approach may still be used to amend already submitted tax returns (i.e. the date of change would be the commencement of trading)? Similarly, the claim for early year losses would apply to our previously submitted personal self-assessment returns. Should both parts of this matter be submitted in writing together? Many thanks for clarifying this.
Posted Mon, 22 Aug 2022 13:48:50 GMT by HMRC Admin 19

A tax return can be amended up to two years after the due date of the tax return, for example, a 20/21 tax return can be amended up to 31/01/2023. If your first year of trading is 20/21, then you can amend the returns to change the accounting period.  

With reference to early years loss relief, the same time limit applies, therefore this can only be claimed for years in which you can still amend your tax returns. You can see more information here:

BIM85045 - Trade losses - types of relief: relief for losses made in early years of trade

HS227 Losses (2022)

Thank you.

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