OK I'm not sure of this point and am going backwards and forwards on this one!!
I have a loss from self employment in 2007/08 which I want to carry back under S380 to 2006/07.
As tax and class 4 NIC were paid in the earlier year, will some of the national insurance be refunded in addition to the tax refund due?
Thank you for any help on this one.
Dave Martin
PS - for anyone who reads this post I think I now have the answer!!
I think you can use a loss to reduce the overall class 4 national insurance liability in the current year if you are paying national insurance on other self employment income in the year. You can also carry forward losses for national insurance purposes against profits of the same trade.
But ... you cannot carry back the loss and reduce national insurance liabilities of earlier years.
Please confirm or advise otherwise on the above.
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SSCBA 1992, S3(4)(b) sets out the rule
It reads:-
3(4) Where in the year 1990–1991 or any subsequent year of assessment for which a person claims and is allowed relief by virtue of sub-paragraph (1) above there falls to be made in computing his net income for income tax purposes a deduction in respect of any loss in any relevant trade, profession or vocation–
(a) the amount of the deduction shall, as far as may be, be treated for the purpose of the charge to Class 4 contributions as reducing the person’s profits for that year of any relevant trade, profession or vocation, and
(b) any excess shall be treated for that purpose as reducing such profits for subsequent years (being deducted as far as may be from those of the immediately following year, whether or not the person claims or is entitled to claim relief under this paragraph for that year, and, so far as it cannot be so deducted, then from those of the next year, and so on).
S3(1) provides
3(1) For the purposes of computing the amount of profits in respect of which Class 4 contributions are payable, relief shall be available under, and in the manner provided by, the following provisions of ITA 2007–
(a) sections 64 and 72 (set-off of trade losses against general income), but only where loss arises from activities the profits of which would be brought into computation for the purposes of Class 4 contributions;
(b) [deleted]
(c) section 83 (carry-forward of loss against subsequent profits); and
(d) section 89 (carry-back of terminal losses).
No, the loss carried back also reduces the Class 4 NIC
A loss carried back under 's380' (s64 ITA 2007) reduces your taxable profit and NIC profit if set against self-employed income. If it is offset against other income (say for example you were employed in previous year) then the loss will not have attracted class 4 NIC relief, and so is carried forward to reduce next available self-employed profits (for class 4 NIC purposes only e.g. tax will still be due on these future profits)