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HMRC internal manual

National Insurance Manual

Class 4 liability: general

Section 15, SSCBA 1992

Chapter 2 of Part 2 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA)

Self-employed contributors, whose profits or gains are chargeable for income tax under Chapter 2 of Part 2 of the Income Tax (Trading and Other Income) Act 2005, (formerly Case I and II of Schedule D of the Income and Corporation Taxes Act 1988) pay Class 4 NICs (but see NIM24510 regarding exceptions). Class 4 NICs are a percentage of the profits or gains, between a lower and an upper profit limit, taxable under ITTOIA in a year of assessment. The year of assessment is the income tax year for which tax under ITTOIA is payable. The Treasury reviews the percentage and limits each year.

The amount of tax and Class 4 NICs payable is normally based on the profits or gains for the accounting year which ended in the income tax year. The accounting year is normally the period of 12 months covered by a contributor’s accounts. It can start on any day.

Class 4 NICs are payable in addition to any flat-rate Class 2 NICs due. Class 4 NICs do not count for benefit, but they are paid into the NI Fund and help to spread the cost of benefits for the self-employed more evenly.

Class 4 NICs are assessed and collected along with income tax via the Self-Assessment regime - unless deferment has been granted (see NIM24004). For further guidance about assessment of income (Schedule D) tax see BIM14000 which covers, amongst other things, those reliefs which are not available within a Class 4 context.