NIM24625 | Class 4 NICs: computation of liability: earnings from employed earner’s employment included in the calculation of the profits of a trade, profession or vocation

Regulation 94A Social Security (Contributions) Regulations 2001 (SI 2001 No.1004)

Income Tax (Trading and Other Income) Act 2005

From 2003/04 onwards, self-employed workers who introduce income, which was subject to Class 1 NICs, into their computation of business profits are entitled to relief from Class 4 NICs on that amount.

Example

Kate is a self-employed doctor. As part of her profession, she receives £2,000 of employment income, which she includes as ordinary professional receipts within Chapter 2 of Part 2 for ITTOIA in accordance with the practice set out at BIM40355 and EIM03002.

Although Kate chooses to include this income in her computation of profits under Case II of Schedule D, she has to pay Class 1 NICs.

Kate’s profit from her profession is £78,000. This includes £2,000 Income from employed earners employment subject to Class 1 NICs.

Kate’s Class 4 NICs Profits are her assessable profit for Case II of Schedule D, £78,000 less the £2,000 Income from employed earners employment subject to Class 1 NICs.

Kate’s Class 4 NICs profit is £76,000.

Partnership Example

Joe and his brother, Pete, run a sub-post office, which is combined with a retail business.

• Joe is the sub-postmaster and receives a salary of £15,000 on which Class 1 NICs has been paid.

• Joe introduces the salary into the combined retail business/sub post office.

• The business has net profits of £40,000.

• The two partners share the profits equally.

Position for Class 4 purposes

Joe (sub-postmaster)

Pete

Only Joe, as the sub-postmaster was paid the post office salary and so only Joe has paid Class 1 NICs, and so only Joe is entitled to relief under Regulation 94A SS(C)R 2001.