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Where Taxpayers and Advisers Meet

Losses for Class 4 setoff

pawncob
Posts: 4337
Joined: Wed Aug 06, 2008 4:06 pm
Location: West Sussex

Losses for Class 4 setoff

Postby pawncob » Fri Jun 22, 2018 3:45 pm

This hasn't been visited for many years and I'm still unsure of the position.

Client had two Sched D sources in 2016/17, (a) a profit of £12000 and (b) a profit of £11000. Losses B/Fwd were £9500, so c£2600 was taxable and Class 4s were charged on £5500 @9%.

This year the results were (a) £8000 and (b) a loss of £3000, so £1800 is being carried back to 2016/17. This will reduce the taxable amount and result in a repayment of tax, but what about the Class 4 position?

Can the loss be used to reduce the charge for 2016/17? Will the loss be available against future Class 4?
With a pinch of salt take what I say, but don't exceed your RDA

AdamS93
Posts: 226
Joined: Tue Sep 26, 2017 6:28 pm

Re: Losses for Class 4 setoff

Postby AdamS93 » Fri Jun 22, 2018 7:03 pm

I haven't brushed up on my loss relief rules recently, but i though you have to make a current year claim before you carried losses back?

With regards to Class 4 NI, you can carry the loss forward for Class 4 NI only (a carry back isn't available) - this is made using the box 'adjustments for the purposes of Class 4 NI' box of the SA - I can't remember the box number of the top of my head...

robbob
Posts: 2807
Joined: Wed Aug 06, 2008 4:01 pm

Re: Losses for Class 4 setoff

Postby robbob » Sat Jun 23, 2018 11:17 am

Argggggghhhhhhhh - losses and multiple businesses and separate clss4NI possibilities all in the same question strewth.


Apologies for being thick pawncob but i am struggling to understand the following calculation - feel free to ignore my post below if i have lost the plot.
This year the results were (a) £8000 and (b) a loss of £3000, so £1800 is being carried back to 2016/17. This will reduce the taxable amount and result in a repayment of tax, but what about the Class 4 position?
If the following correct?
So for ye 5/4/2018 we have no losses b/f

Profit from one trade of £8,000
and loss from second trade of £3,000

how did you calculate the £1,800 being carried backover? - are you saying the 3k loss is split £1,200 current year (net sole trader profit 6800) and £1,800 carried back - note to self can a split like this be done?

Hmmmm i'm not scheduled to leave for the pub till 1.30 pm perhaps i should give up and depart now.


https://www.taxation.co.uk/Articles/2014/03/24/322311/momentary-lapse-reason
https://www.gov.uk/government/publications/more-than-one-business-hs220-self-assessment-helpsheet/hs220-more-than-one-trade-profession-or-vocation-2017
https://www.gov.uk/hmrc-internal-manuals/national-insurance-manual/nim24610
https://www.gov.uk/hmrc-internal-manuals/national-insurance-manual/nim24610


I would have guessed that the class4 loss follows the loss for tax purposes to the extent that those losses are set against "sole trader income" - so there is only a class4 loss to carry forward if the loss has been set against other income or there is a sole trader loss carried forward. Whether that loss must then be used up at the first available point later on and if it is restricted to the same trade are interesting questions i don't know the answer to.

pawncob
Posts: 4337
Joined: Wed Aug 06, 2008 4:06 pm
Location: West Sussex

Re: Losses for Class 4 setoff

Postby pawncob » Mon Jun 25, 2018 10:20 am

G'day robbob,

There were losses B/Fwd in 2016/17 (£9500) and this reduced the taxable amount to £1800, which is why this amount is being carried back to that year. The client wants the effect of the partnership income (b) to be minimised, which is why I'm trying to eliminate it from both years as far as possible.
NIM24610 states:
As claims for Losses under Class 4 NICs are made in the same way as for Income Tax, the guidance in the Business Income Manual applies to Class 4 NICs as well as Income Tax.

so I assume that if I carry back the 2017/18 loss to the previous year, the Class 4 charged will be reduced by the loss.

If it is, all well and good. If it isn't then the Class 4 charged will be irrecoverable, but the loss can still be utilised against Class 4 in future years.

Agree?????
With a pinch of salt take what I say, but don't exceed your RDA

robbob
Posts: 2807
Joined: Wed Aug 06, 2008 4:01 pm

Re: Losses for Class 4 setoff

Postby robbob » Mon Jun 25, 2018 2:00 pm

Hello pawncob

It's still clear as mud how the losses have arisen and how and when they have been used against profits, that probably doesn't matter though if you are happy everything is correct on that front, i would 100% agree that if you carry back a trading loss to set against the previous years trading profit then the class 4NI for the previous year will reduce as appropriate based the amount of loss you carry back.


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