From 2003-04 onwards, people who are self-employed and who introduce income, which was subject to Class 1 NICs, into their computation of business profits, are not liable for Class 4 NICs on that amount.
Kate is a self-employed doctor. As part of her profession, she
receives £2,000 of employment income, which she includes for
tax purposes as ordinary professional receipts within the trading
income rules in accordance with the practice set out at BIM40355
and EIM03002.
Although Kate chooses to include this income in her
computation of profits for tax purposes, she has to pay Class 1
NICs on it.
Kate’s profit from her profession is £78,000. This
includes £2,000 income from employed earner’s employment
which is subject to Class 1 NICs.
Kate’s Class 4 NICs profits are her assessable profit
for trading income purposes (£78,000) less the £2,000
income from employed earner’s employment which is subject to
Class 1 NICs.
Kate is liable for Class 4 NICs on profits of
£76,000.
Joe and his brother, Pete, run a sub-post office, which is combined with a retail business.
Joe (sub-postmaster)
| Profit share 50% | £20,000 |
| Less the sub-postmaster’s salary on which he has paid Class 1 NICs | £15,000 |
| Class 4 NICs due on profits of | £5,000 |
Pete
| Profit share 50% | £20,000 |
| Class 4 NICs due on profits of | £20,000 |
Only Joe, as the sub-postmaster, was paid the post office salary and only Joe has paid Class 1 NICs and so only he is exempt from liability in respect of the amount of earnings which is subject to Class 1 NICs.
