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Using Self-Employment Losses Against Class 4 National Insurance. If you are self-employed and your business makes a loss, then you should make a note and use this to your advantage in future years. Here’s How.
If you are self-employed and your business makes a loss then you can use this loss against your income tax and national insurance. That way you’ll be able to save yourself some money.
How National Insurance Works When You’re Self-Employed
When you are self-employed you pay two types of national insurance – Class 2 and Class 4.
Class 2 is paid at a set amount once your profits reach a certain level. So if you have made a loss you won’t need to pay Class 2, unless you choose to do so voluntarily.
Class 4 however is paid above a certain amount of profit, based on the profits your business has made.
The current Class 4 National Insurance rates are:
|Small profits threshold – no NICs below this threshold||£8,632||£8,424|
|Class 4 National Insurance 9%||£50,000||£46,350|
|Class 4 National Insurance 2%||over £50,000||over £46,350|
Using Self-Employment Losses Against Class 4 National Insurance
When you are self-employed and you make a loss, you can carry forward this loss to use against future profits.
You make a profit from your self-employment business as follows:
Here’s how you can use up his trading loss made in 2015/2016 against future business profits:
|Profits for Class 4 NI||0|
|Profits for Class 4 NI||£25,000|
This means you benefit from a reduction in his Class 4 National Insurance in the two tax years following the tax year you made the loss.
Make sure you keep a record of all your tax losses separately to your tax return and how you use them.
Self-Employment Losses and Income Tax
Similar to the above for Class 4 National Insurance, you can also use your loss against your income tax bill.
There is more flexibility about how you use this and in some cases you can:
- Use your losses against future profits;
- Carry your loss back to recalculate your tax bills in previous years;
- Use your losses against your employment earnings if you’re employed and self-employed;
- Set your loss off against any capital gains.
Updated 27 May 2019
Anita is a Chartered Accountant with over a decade of experience taking self employed business owners from financially confused to business savvy.
She is the creator of the ‘Go Self Employed’ website, which her corner on the internet where she makes self employment less terrifying.