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Where Taxpayers and Advisers Meet

Class 4 and losses

dagreensta
Posts:16
Joined:Wed Aug 06, 2008 3:23 pm

Postby dagreensta » Wed Apr 27, 2005 7:02 am

Quick question:

2 Self Employments, one makes a profit and one a loss. If the loss is offset against other income for that tax year then am I right in thinking class 4 Nic should be calculated against the sum of the profit and loss and not just against the profit?

Sage's Taxation Suite is not taking into account the loss and calculating NIC against the profit from the one self employment.

Is this correct?

deanshepherd
Posts:1019
Joined:Wed Aug 06, 2008 3:23 pm

Postby deanshepherd » Wed Apr 27, 2005 7:49 am

It is correct. Losses of a second trade are not offset for NIC purposes.

Although Sage Taxation Suite? Worst tax software I have ever used. I could give you a long list of problems with that software. I recommend PTP.


Dean Shepherd
dean@mmi-online.co.uk
www.mmi-online.co.uk

dagreensta
Posts:16
Joined:Wed Aug 06, 2008 3:23 pm

Postby dagreensta » Wed Apr 27, 2005 9:40 am

Glad to know somebody else finds Sage to be dreadful!

To confirm then: Class 4 NIC will be charged against the profit from the first sole trade and the loss being offset will not affect this, just the income tax?

Instinctive
Posts:1797
Joined:Wed Aug 06, 2008 3:15 pm

Postby Instinctive » Wed Apr 27, 2005 10:00 am

To be honest, I always thought that trading losses were also off-settable for NIC4 purposes, whether this was by carry forward against same trade or against other trade, I am not sure. However, I could be completely wrong as I never came across this in practice and have not checked any material on this.

Ramnik

King_Maker
Posts:6538
Joined:Wed Aug 06, 2008 3:22 pm

Postby King_Maker » Wed Apr 27, 2005 10:29 am

I would disagree with Dean and agree with Ramnik.

Trading lossess for income tax purposes can be relieved in the same way for Class 4 NIC in respect of earned income - see Schedule 2 para 3(1) SSCBA 1992. Likewise page 17 of the the IR booklet CWL2, downloadable from their website.

Whether this is the best utilisation of Loss Relief is another matter.

dagreensta
Posts:16
Joined:Wed Aug 06, 2008 3:23 pm

Postby dagreensta » Thu Apr 28, 2005 1:13 am

Slightly confused now but I've looked at the IR booklet CW2 and agree with King Maker. Is it possible you could explain your response Dean as I still not clear on this!

deanshepherd
Posts:1019
Joined:Wed Aug 06, 2008 3:23 pm

Postby deanshepherd » Fri Apr 29, 2005 1:51 am

I am afraid King_Maker is incorrect. Page 17 of IR booklet CWL2 is a little misleading, it does not actually refer to carrying on two self-employments. Although, I agree you could come away with that impression.

You cannot set one trading loss off against another for Class 4 purposes. This is why SAGE, PTP, PerTax and most other tax software will not allow you to do so.

You can carry the loss forward and set it off against future profits of the same trade for Class 4 purposes, even if you have already set it off against other income for tax purposes.

This is a common misconception as this situation does not arise that often.


Dean Shepherd
dean@mmi-online.co.uk
www.mmi-online.co.uk

King_Maker
Posts:6538
Joined:Wed Aug 06, 2008 3:22 pm

Postby King_Maker » Fri Apr 29, 2005 2:08 am

Dean,

Does not SSCBA 1992 allow Class 4 losses to be treated in the same way as Income Tax losses?

I believe it does. In which case, losses from one trade can be set against other income of the tax year, including another trade.

deanshepherd
Posts:1019
Joined:Wed Aug 06, 2008 3:23 pm

Postby deanshepherd » Fri Apr 29, 2005 2:39 am

I admit the wording can appear a little ambigous. The losses are treated the same way as for income tax purposes but only in reference to the loss-making trade. They do not change the NIC position of the other trade which will pay Class 4 NIC regardless of any other trading losses.

That is my view, SAGE's view, PTP's view and PerTax's view but as with any legislation you are open to seek interpretation from the courts. Good luck with that!

King_Maker
Posts:6538
Joined:Wed Aug 06, 2008 3:22 pm

Postby King_Maker » Fri Apr 29, 2005 3:13 am

Dean,

I have not come across this particular situation before, so you may well be correct.

However, my (quick) reading of the relevant Social Security legislation has not lead me to change my mind - but I could be missing something?


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