A. There are circumstances where someone may sustain an employment income loss in any given tax year. For example, this may be due to the clawback of a joining-on fee or a bonus payment if conditions to the payments have not been adhered to.
Example
- A Limited offers employment to Mr. X for a £40k per annum salary and to incentivise him to join the business he also offers him a joining-on fee of £100k
- The terms of the joining-on fee have clawback provisions included in them if Mr. X does decide to resign within 5 years of joining the business
- Mr. X decided the role was not for him and chooses to leave the business after 12months, thus failing to meet the conditions of the joining-on fee. Mr. X has to repay £80k in the year of departure
- In the year of departure, Mr. X has negative net taxable earnings for the year of minus £40k (£40k salary less (£100k x 4/5) = -£40k)
Loss relief may be available under section 128 ITA 2007, to be given by set-off against general income of the current and/or prior tax year. So for example, if Mr. X has rental income of £15k and dividends of £10K, he may use the negative £40k to offset against these streams of income for the current and/or prior tax year. Note that although this may waste his personal allowance, it may still be the favourable option to go with, as any unused loss cannot be carried forward.
There are a number of other factors to consider in such circumstances and each case will need to be looked at in its own merit to determine the best course of action. Please call our advice lines on 0844 892 2470 to discuss any matter surrounding this topic.
If you have a tax query, why not contact the Tax Advice Line on 0844 892 2470 to discuss it. Our team of experts have a wealth of experience and can also provide a written consultancy service at £180 per hour plus VAT.
