NIM24605 - Class 4 NICs: computation of liability: profits of a tax year
Class 4 NICs are payable on the profits of a tax year (SSCBA91/S15 (5)).
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 ITA88/S353 and annuities or annual payments within ITA88/S348 or ITA88/S349 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 ITA88/S619 or S620 (SSCBA92/SCH2/PARA3 (2)(f)),
- personal pension payments under ITA88/S639 (SSCBA92/SCH2/PARA3 (2)(g)).
Loans to a partnership
ITA88/S362 gives a partner relief from Income Tax under ITA88/S353 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.
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A person who has听self-isolated听due to COVID-19听could, if entitled, receive听a听payment under one of the following schemes;听
- England 鈥� the Test and Trace Support Payment Scheme听
- Wales 鈥� the Self-Isolation Support Scheme听
- Scotland听鈥撎齮he Self-Isolation Support Grant听
There听is听currently听no equivalent scheme in Northern Ireland.听听
Where the听person听is self-employed (or a partner听in a partnership/LLP)听the听payment听received听under one of these schemes听is听to be brought into account听in computing the听profits from a trade for Income Tax purposes听(see BIM40456)听and听by default would听be听liable to Class 4 NICs.听
It is intended听to听exclude payments received under one听of these schemes from the computation of profits liable to Class 4 NICs听for tax year听2020-21 and subsequent years.
听