NIM24605 | Class 4 NICs: computation of liability: profits of a tax year

Class 4 NICs are payable on the profits of a tax year (SSCBA92/S15(1)).

The starting point of the computation of the Class 4 liability is the profit of a trade, profession or vocation as computed for Case I/II of Schedule D (SSCBA92/SCH2/PARA2).

There are a limited number of adjustments to this profit.

Admissible deductions

Interest within ITA2007 and annuities or annual payments within ITA2007 may be deducted in computing NICs profit to the extent that they are incurred for the purposes of the trade and have not been allowed in computing trade profit (SSCBA92/SCH2/PARA3 (5)).

Inadmissible deductions

No relief is given for:

• personal reliefs (SSCBA92/SCH2/PARA3 (2)(a)),

• retirement annuity relief and superannuation contributions under SSCBA92/SCH2/PARA3 (2)(f) and ITA2007,

• personal pension payments under SSCBA92/SCH2/PARA3 (2)(g and ITA 2007.

Loans to a partnership

ITA2007 gives a partner relief from Income Tax for interest on a loan used to buy into a partnership or to provide money for the partnership.

The interest can only be deducted in arriving at the Class 4 NICs profits where the money is used wholly or exclusively for the purposes of the trade (SSCBA92/SCH2/PARA3 (5)).

No relief is available where the loan was used to buy a share of a partnership from another partner.

Relief is available where the loan is used by the partnership for the purposes of the trade. Examples of this would include where the loan is used as working capital or to finance the purchase of business assets.

COVID-19 self-isolation scheme payments

A person who has self-isolated due to COVID-19 could, if entitled, receive a payment under one of the following schemes;

• England – the Test and Trace Support Payment Scheme

• Wales – the Self-Isolation Support Scheme

• Scotland – the Self-Isolation Support Grant

There is currently no equivalent scheme in Northern Ireland.

Where the person is self-employed (or a partner in a partnership/LLP) the payment received under one of these schemes is to be brought into account in computing the profits from a trade for Income Tax purposes (see BIM40456) and by default would be liable to Class 4 NICs.

It is intended to exclude payments received under one of these schemes from the computation of profits liable to Class 4 NICs for tax year 2020-21 and subsequent years.