Income tax & nic class 4 treatment

jmp2008jmp2008 New MemberRegistered Posts: 9
Hi! Please help on income tax and NIC class 4 treatment. The scenario is :

Mrs. J is a self-employed consultant and paid income tax of £450.00 for 2009-2010. Can she claim this as business expense ? If so what period shall this be recorded?

If for example she paid Class 4 NIC for 2009-2010 can she claim it as business expense ?

I asked a qualified accountant he said this can be claimed as expense and yet when i had the HMRC course "business expenses and capital allowances for the self-employed" and raised this scenario he said this is not allowed as business expense.... so i'm confused now.

Help please especially from those who has done this before. thanks!!

Your reply is greatly appreciated.

JP

Comments

  • BluewednesdayBluewednesday Font Of All Knowledge Registered Posts: 1,624
    Both income tax and class 4 ni are personal not business expenses.
  • sloshedsloshed Well-Known Registered Posts: 100
    Class 2 and 4 National Insurance / Income Tax is viewed by HMRC as a personal liability.

    Class 1 / 1A / 1B NIC is viewed as an expense of employing somebody and is therefore allowable.

    Hope this helps!
  • MonsoonMonsoon Font Of All Knowledge FMAAT, AAT Licensed Accountant Posts: 4,069
    jmp2008 wrote: »
    I asked a qualified accountant he said this can be claimed as expense and yet when i had the HMRC course "business expenses and capital allowances for the self-employed" and raised this scenario he said this is not allowed as business expense.... so i'm confused now.

    What? For real?

    Personal tax is not an allowable expense. Ever.

    I can't believe there are people in practice who think it is.

    As Sloshed says, the only time NI is allowable is in relation to employing someone.

    *gobsmacked*
  • jmp2008jmp2008 New Member Registered Posts: 9
    Yes, this is true! Now, it does really make me think twice about using him.
  • jmp2008jmp2008 New Member Registered Posts: 9
    Sole-trader

    Does this case applies the same to a sole trader who runs a Cafe and paid tax from his profit?


    For accounting purposes, does this tax he paid to HMRC be included in his Profit & Loss account or will just be a personal liability therefore it won't appear on the P & L ?

    Your view is highly appreciated. thanks!!!


    JP
  • sloshedsloshed Well-Known Registered Posts: 100
    The tax paid is a personal liability. It is not a business expense so should not be included in the profit & loss account.
  • BluewednesdayBluewednesday Font Of All Knowledge Registered Posts: 1,624
    Are you sure the accountant you asked properly understood your question? I can't imagine anyone would think that it is tax deductible. For a start how can you calculate tax if it was also tax deductible - it would create a circular reference!!
  • jmp2008jmp2008 New Member Registered Posts: 9
    Yes, I was sure! Because when i spoke to him on the phone I definitely said that if for example I paid any tax on the profit of my business as self-employed, will I be able to claim it as business expense and he said, "yes you can".

    I know that companies can claim corporation tax that's why I asked for self-employed from him.

    I'm actually surprise about what he said now that I got your views.

    Thanks!!!


    JP
  • Gem7321Gem7321 Experienced Mentor DevonMAAT, AAT Licensed Accountant Posts: 1,438
    I imagine you've lost your faith in him now!
  • CT, PAYE and NI are not business expenses as they never hit the P&L. They are all balance sheet adjustments.

    If a person is both self employed and employed then SE PAYE can be offset against employment PAYE if the SE business has made a loss.
  • MonsoonMonsoon Font Of All Knowledge FMAAT, AAT Licensed Accountant Posts: 4,069
    jmp2008 wrote: »
    I know that companies can claim corporation tax that's why I asked for self-employed from him.

    No they can't. Tax suffered by an entity on its own profits cannot be a tax-deductible expense in calculating its own profits.
  • Gem7321Gem7321 Experienced Mentor DevonMAAT, AAT Licensed Accountant Posts: 1,438
    jmp2008 wrote: »
    I know that companies can claim corporation tax that's why I asked for self-employed from him.

    I think you could be getting muddled because corporation tax charge is shown on the P&L, but it's not an expense, it's put there to show the actual profit distributable to shareholders.
  • 111beckstar111111beckstar111 Well-Known Registered Posts: 158
    Omg

    I wish we could lamo x funniest thing I have seen all day!
  • Michelle SMichelle S New Member Registered Posts: 13
    Income Tax & NIC Class 4 Treatment

    Please explain again why we can't allow this as an expense.

    I have told my client that they could as in my view, they would not be self employed if they did not have the business therefore they should be able to claim it as an expense of the company.

    If my reasoning just mince let me know as in fact I am obviously doing the same with my quarterly bill from HMRC.
  • Anne BoleynAnne Boleyn Well-Known Registered Posts: 196
    Income Tax & NI

    Just to confirm that income tax that you pay as a self employed person is not an expense of your business and therefore not allowable. Same for NI, class 2 & class 4.
  • BluewednesdayBluewednesday Font Of All Knowledge Registered Posts: 1,624
    Michelle S wrote: »
    Please explain again why we can't allow this as an expense.

    I have told my client that they could as in my view, they would not be self employed if they did not have the business therefore they should be able to claim it as an expense of the company.

    If my reasoning just mince let me know as in fact I am obviously doing the same with my quarterly bill from HMRC.

    The reasoning is that it is their personal expense not a business expense.

    If you are employed you can't claim it - have you really told one of your clients that they can claim their tax and NI against their business expenses? If so how are you going to backtrack? Just interested
  • burgburg Experienced Mentor GloucesterModerator, FMAAT, AAT Licensed Accountant Posts: 1,436
    The reasoning is that it is their personal expense not a business expense.

    If you are employed you can't claim it - have you really told one of your clients that they can claim their tax and NI against their business expenses? If so how are you going to backtrack? Just interested

    Sorry but I really must agree with Annette.

    At the risk of sounding offensive this really is simple stuff. The fact that now a client has very poor advice and not just from Joe Bloggs down the pub is really in my opinion very poor.

    I would also be interested to hear how you are going to back track with the client?
    Regards,

    Burg
  • RachelRachel Trusted Regular FMAAT, AAT Licensed Accountant Posts: 349
    Agreed when I was employeed I can just picture my bosses face if I handed in an expense form for my National Insurance and Income Tax and saying that they are business expenses because I wouldn't incur them if he wasn't in business and hadn't employeed me.
  • Michelle SMichelle S New Member Registered Posts: 13
    backtrack

    I haven't decided yet. I'll let you know.
  • MonsoonMonsoon Font Of All Knowledge FMAAT, AAT Licensed Accountant Posts: 4,069
    burg wrote: »
    Sorry but I really must agree with Annette.

    At the risk of sounding offensive this really is simple stuff. The fact that now a client has very poor advice and not just from Joe Bloggs down the pub is really in my opinion very poor.

    I would also be interested to hear how you are going to back track with the client?

    'Fraid I have to agree with this too.
  • payrollpropayrollpro Trusted Regular Hampshire/SurreyRegistered, Working Together with HMRC Posts: 415
    Michelle,

    Clearly your client is a sole trader, hence the class 2 NIC. As has been mentioned this is personal liability and is being paid by him/her personally as a way of protecting state pension and maintaining the NIC record.

    The total paid is not chargeable against the sole trader income as it is not a business expense.

    Once all the real charges have been deducted from the total income the balance is liable for the final income tax and class 4 liabilities. Since these occur after the profit before tax has been determined they clearly cannot figure in the taxable profit figure at all.

    I hope this clarifies the situation.

    The only income tax and NIC which is chargeable against business income for tax purposes is PAYE deducted and charged in respect of employees employed by the sole trader as this is business expense. The employees are there to generate income for the business and therefore the cost of those employees can be charged.

    For a company the detail is slightly different but the principles are the same. CT is not a business expense as such, it is chargeable but only after all the business expenses have been deducted and the PCTCT is calculated.

    I hope this helps to focus your thoughts.

    Payrollpro
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