Can I Use My Loss?

Q: I paint in my spare time and sometimes, my friends and family buy my paintings from me. Because artist's materials can be expensive and some pieces don't work out and I throw them in the bin, I run at a loss. Luckily, I have a full-time job to keep the money coming in but is there anyway I can declare my painting loss and reduce my tax bill?

Melissa, Ludlow

A: HM Revenue & Customs stipulate that losses may only be offset if the trade is commercial and it aims to generate a profit. Your outline of your circumstances suggests you are not optimistic of ever turning a profit, and therefore, you are unlikely to be able to offset your losses against your employment income. Instead, the losses will be carried forward and can only be offset against any profits your business makes.

It also sounds as if you need to review what constitutes a trade, before you register as self-employed. You need to consider for example, if you have ulterior motives (i.e. it's a hobby), the frequency of the paintings, the turnaround times of the paintings, and (as mentioned above) if you really hope and intend to make a profit etc.

There is no conclusive definition of what constitutes a 'commercial' basis or a 'trade'. And whilst HM Revenue & Customs provides guidance on these areas, it is in-part, a judgment call. Please feel free to contact your local TaxAssist Accountant to discuss this with you, or provide any other start-up advice.

We provide tax accountancy services in Ludlow and throughout the UK.  http://www.taxassist.co.uk