Liabilities and Losses
Liabilities
Liabilities are amounts your business owes to other people or businesses. Liabilities can include bank loans, amounts owed to suppliers and, of course, amounts owed to H. M Revenue & Customs. Liabilities will also include accruals (see A for more information)
The balance sheet of your company accounts will include fixed assets, current assets (see A) and liabilities. The sum of these three items will equal the company’s paid-up share capital and the profit and loss account for the current year and prior periods.
Losses
Trading losses can arise in Limited companies and for the self-employed. Corporation tax losses can be carried back to set against previous years’ profits or carried forward to set against future years’ profits.
If you make a loss when you are self-employed you can set this loss against other income arising in the same tax year, carry the loss back against business profits of a prior year or carried forward to set against future profits. This relief can be particularly useful if you have employment income for part of the year and you have a loss making self-employment business for part of the year. Subject to certain limits set out in the Finance Act 2013 you can set your trading losses against your employment income to reduce the amount of income subject to tax. If you have been paying tax through PAYE you may well be entitled to a tax repayment.
Choosing what to do with self-employment losses can be tricky and if you have just started trading the losses will be subject to the “opening year” rules. You should take advice from your accountant if you are in this position.