I agree that it is now, but I think that in the past it was quite a lot
easier to get one. I suspect that non-genuine people always find it
easier to get around the rules, then the law-abiding ones. How I don't
But it all gives me no confidence at all in the proposed National
Only if their profits are less than £4465. Otherwise it is
mandatory to pay class 2 contributions (of £2.10 per week).
You also have to pay class 4 contributions of 8% of the amount
by which profits exceed £5035 (up to £33540, 1% thereafter).
Even if your profits are less than the exception limit, it might
be worth paying C2 anyway (unless you are also employed and paying
C1) because it earns you qualifying years for the state pension.
Don't know. £100? The slammer? No pension? All of the above?
Can you clarify: Are 'profits' calculated *after* deduction of basic
living expenses (food, mortgage interest payments, council tax,
If I were self-employed and making a loss every year, sliding
gradually ever deeper into debt, then I'd be exempt from having to pay
NI, correct? Would I also be exempt from income tax? And would I
still be legally obliged to send in a tax return each year?
who would you find to loan you this money if
you had no income.
Probably. You need to 'register' the loss as you can claim
it against future profits - no-one runs a business that
makes a loss forever. It would be a stupid thing to
do (certainly in the eyes of the revenue)
Indeed not. They are after deduction of legitimate expenses *of the
business*, not of personal living expenses.
Unlikely, except inasmuch as consumption of utilities can be
attributed to the business.
He might have had the loan prior to becoming self employed.
No, it depends. His business might be making a taxable profit,
but it might still not be enough to cover *living* expenses. In
such case he would still have to pay tax.
You always have to complete a tax return when asked, no matter
whether any tax ends up being due or not.
The eyes of the revenue are irrelevant, and it's not necessarily
all that stupid. For a person who has virtually no living expenses
(such as the unemployed spouse of a "normal" earner, for example) it
might perfect sense to run a business at a loss for years (it might
be little more than a hobby and hobbies *usually* run at a loss),
and simply to accumulate the losses in the books just in case the
business become serious one day, because *then* these old losses
can be set against present earnings, to defer the time at which
actual tax becomes payable.
Of course losses from such a "funny business" can't be carried
sideways against other current earnings, at least not without
attracting the revenue's attention.
I think that there is a limit of 3 years losses which can be carried forward
to set against profits.
| >>>> I thought paying NI contributions was optional for S/E people.
| >>>Only if their profits are less than 4465.
| >> Can you clarify: Are 'profits' calculated *after* deduction of basic
| >> living expenses (food, mortgage interest payments, council tax,
| > no.
| Indeed not. They are after deduction of legitimate expenses *of the
| business*, not of personal living expenses.
| >> utility bills)?
| > perhaps.
| Unlikely, except inasmuch as consumption of utilities can be
| attributed to the business.
| >> If I were self-employed and making a loss every year, sliding
| >> gradually ever deeper into debt, then I'd be exempt from having to pay
| >> NI, correct?
| > who would you find to loan you this money if
| > you had no income.
| He might have had the loan prior to becoming self employed.
| >> Would I also be exempt from income tax? And would I
| >> still be legally obliged to send in a tax return each year?
| > Probably.
| No, it depends. His business might be making a taxable profit,
| but it might still not be enough to cover *living* expenses. In
| such case he would still have to pay tax.
| You always have to complete a tax return when asked, no matter
| whether any tax ends up being due or not.
| > no-one runs a business that
| > makes a loss forever. It would be a stupid thing to
| > do (certainly in the eyes of the revenue)
| The eyes of the revenue are irrelevant, and it's not necessarily
| all that stupid. For a person who has virtually no living expenses
| (such as the unemployed spouse of a "normal" earner, for example) it
| might perfect sense to run a business at a loss for years (it might
| be little more than a hobby and hobbies *usually* run at a loss),
| and simply to accumulate the losses in the books just in case the
| business become serious one day, because *then* these old losses
| can be set against present earnings, to defer the time at which
| actual tax becomes payable.
| Of course losses from such a "funny business" can't be carried
| sideways against other current earnings, at least not without
| attracting the revenue's attention.
There's an unofficial, three year limit during which the revenue
may allow losses from a 'hobby' business to be offset against
other income, whilst the business proves itself.
As Peter said, there is no limit on how long you can 'bank'
the losses to offset against future profits from the same
On Sat, 18 Nov 2006 19:48:09 -0000, "tim\(yet another new home\)"
I have a client who was a successful actress in New Zealand and she
came to London to seek acting work. She had to do other work while
marketing herself but her previous accountant didn't claim her
losses. When I submitted her tax return I deducted the losses against
her employment income and got her a big refund.
Peter Saxton from London
Or it could be credit card debts, yes? Credit card companies were
pretty free and easy and generous with the credit they extended in the
1990s and beyond. And he might have several such credit cards.
How about if he lived more-or-less at subsitence level, and was still
sliding slowly deeper into debt every year?
What if this self-employed person isn't sent a tax return? Does he/she
still have to fill one in? Or is it possible that the IR doesn't send
him/her a tax return because it's better for them if he/she *doesn't*
fill one in.....
The person could be running his/her little 'business' at a loss, and
sliding ever deeper into debt due to the interest he's paying on his
debts, but knowing that at some point in the future, he will inherit
enough money to pay off most of his debts, after which, there would be
no more interest to pay, and therefore the little business could then
be profitable and grow. ...Your comments?
Makes no difference. If you have enough income for any tax to be
due, then you *must* pay it, and it has a higher priority than any
other debts you may need to settle.
Mind you, if you live at subsistence level, it is likely that your
income will be so low that very little, if any, tax would be due.
I dare say you *could* live on £5k a year.
No, you only have to fill one in if you are sent one and asked to
fill it in. But even if you don't get sent one, it is your responsibility
to pay the right amount of tax, which in practice might means you need
to ask them to send you one.
Better for *them* meaning better for IR? That would only be the case
if he would be due a tax refund, which seems unlikely in the circumstances.
I don't understand this scenario. If the word "therefore" is to be taken
at face value, one would need to deduce that the only reason the business
is now making a loss (but will not once the debts are cleared) is because
it (the business) has to pay interest on (by implication) business loans,
which interest exceeds what would otherwise be the business's profit but
for the loan interest.
But if the debts are private and not business-related, are you suggesting
the business should deliberately be making a loss? That doesn't make sense.
What would he live off? Is he a "carer" for (and sponging off) the person
he expects to inherit from?
Surely the business (if it's his only source of income) should aim, in the
first instance, to make profit equal to the personal allowance of £5035.
This means no tax is payable, nor C4NI. He would still have to pay C2NI
of £109 if his profits exceed the exception limit of £4465.
But surely it then becomes even better to make profit over and above
the £5035 even if it means paying some income tax, because there will
still be something left for him of this extra profit even after the
tax thereon has been paid.
Yes; I meant the IR... I'm thinking that it would be more profitable
for the IR if he/she doesn't send a tax return if he's making a loss,
because then he won't be able to set those losses against future tax
liabilities.... Also, if a person is only going to be liable for a
tiny amount (or zero) tax, and it is unlikely to cover the IR's admin
to deal with it, they'd be better of not dealing with it.
<small part snipped>
That's what I meant. For example, if the person is paying £5,000 a
year in loan (e.g., credit card) interest (used to run the business)
and making a slight loss each year, or a slight profit, say £4,000 or
so, i.e., just surviving.
Not that he/she shoul deliberately be making a loss. I meant that
he/she is only able to make a very small profit; say, £4000. If the
money that was borrowed was from a credit card, and used to run the
business, it would be a 'business-related' loan, yes?
Then, I'm suggesting that someone in this position would want to avoid
having to pay any tax because he/she is already struggling to survive,
and perhaps slipping slowly deeper into debt. So as long as he/she
managed to make no more than £5000 p.a. profit, they wouldn't have the
expenses and obligations of paying tax, yes? I think you already said
"yes" in the following paragraph:
Surely, ...but I am theorising about a person who is unable to make
more than £5000 profit at present... mainly due to the £5000 p.a or so
that he's paying in loan interest.
But there is also the issue where such a person has not been paying
any tax for several years because he/she has, every year, been below
the tax-paying threshold, but then starts making more profit, but is
fearful that when he starts sending in a tax return, the IR will
pounce on him/her and want to know everything about his finances over
the past 9 years or whatever... thus forcing him to come up with
enough funds to pay an accountant to do a few weeks' work. That dread
might well be anough to put him off wanting to make a bigger profit,
don't you think?
Thanks for the feedback.
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