NIM24620 - Class 4 NICs: computation of liability: earnings from employed earner’s employment taxable as income from a trade, profession or vocation

Regulation 94 SS(C)R 2001

Some people who are liable to Income Tax as self-employed pay Class 1 NICs in accordance with the Categorisation of Earners Regulations 1978. These people are exempt from paying Class 4 NICs on that income by Regulation 94 SS(C)R 2001.

In some cases, such as entertainers, the individual may, for the purposes of National Insurance, earn part of their income from an ‘employed earner’s employment’, subject to Class 1 NICs, and part from self-employment subject to Class 4 NICs.

For Income Tax purposes there is only one activity, the trade of entertainer, assessable under Chapter 2 of Part 2 of ITTOIA 2005. In this situation the entertainer pays Class 4 NICs on the profits chargeable to income tax less the sum on which Class 1 NICs have been paid.

Example

Paula is an actress. She has a number of engagements during the year. The income from some of these contracts is ‘employed earner’s employment’ on which she pays Class 1 NICs.

• Paula had total income in the year of £40,000.
• Paula had allowable expenses of £10,000.
• Paula’s profit assessable to Income Tax was £30,000.

However this profit figure includes income from employed earner’s employment of £20,000. Paula does not pay Class 4 NICs on this income.

Paula has to deduct the income from the employed earner’s employment to arrive at her Class 4 NICs liability :