Class 4 and losses

[Instinctive]

Here is a conclusive answer which proves why I think John Kavanagh, King maker and I are right. I would not be surprised if majority of professionals also stumble on this issue as it very rare in practice. And when it arises, I wouldn't be surprised if taxpayers or their agents effectively ignore to claim the loss reliefs for NIC4 purposes.

Can I refer you all to Self-Employment page SE3 and Box 3.96 ' Adjustments to profit chargeable to Class 4 National Insurance Contributions'. It emphasises relief for losses brought forward from the same trade and gives the impression that relief is not available in the same year for losses from another trade.

However, I now refer to Inland Revenue Helpsheet 220 'More than one trade'. It is a bit torturous to go through this (may be I am getting old!) but this clearly advises to add profits from all trades. It then advises to aggregate all reliefs, including claim for losses of the same year and enter this in the Box 3.96.

The Tax Return notes and Helpsheets also states clearly that loss reliefs for NIC4 purposes can be claimed in exactly the same way as loss reliefs for Income Tax purposes. However, one can claim the reliefs for tax and reliefs for NIC4 as it suits them best. The treatment for tax & NIC4 does not have to be identical. Eg, if there is a profit of £4,500 in one trade and a loss of £10,000 in another trade, one can claim the whole of the loss against other income of the same year if it suits them for tax purposes, but preserve the full losses for NIC4 purposes to carry forward against future profits of the same trade.

I don't think that the querist need to look for a Band D (Musical) Technician.

Ramnik
ramnikrp@hotmail.com

[deanshepherd]

Thank you John and Ramnik. I stand corrected.


Dean

(I wonder if this forum will count towards CPE points!)

[Antony]

As a new member I was very interested to read the above - I have come across a number of cases where the NIC4 loss relief has been overlooked (by clients dealing with their own affairs or other advisers).

Am I alone in thinking that HMRC value the NIC collected and are not too worried about taxpayers missing out otherwise why has there not been more specific easy to read guidance in the manuals etc?

[johnfkavanagh]

Antony

Welcome to the forum. In all honesty, I do not think that the excessive NIC payments made in this kind of situation even appear on HMRC's radar. I think that by and large they are simply unfamiiar with the rules and that is the main reason why they do not point out that the claims can be made. Or perhaps their software isn't programmed to deal with it either!?

John Kavanagh
UK Tax Consulting Ltd
Chartered Tax Advisers
www.uktaxconsulting.co.uk
mail@uktaxconsulting.com
Tel: 020 7060 1660
Fax: 020 7060 1663

[Antony]

Thanks John

You may be correct - suppose I am just too cynical thinking that the IR, sorry HMRC, are three steps ahead!

We operate a small practice in Dorset and I have always treated loss claims for NIC4 entirely separate to those for income tax. I have always assumed that the loss claims can be made entirely independent of each other (e.g c/back for income tax and c/fwd for NIC4 for a new trader). Does anybody know if there are circumstances where a claim for losses for NIC4 would differ from the equivalent claim for income tax - e.g. s.380, 381, 385 etc.

Also am I right in assuming that the allowable losses for NIC4 (as for income tax) are the loss including Capital Allowances?

Finally, is there a good on-line resource for researching more about NIC4 (or at least to satisfy myself that I have dealt with the NIC4 loss claims correct in the past)?

Many thanks
Antony