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HMRC internal manual

National Insurance Manual

Class 4 NICs: who is liable: sleeping partners - liability to pay Class 2 and 4 NICs from the 2013 to 2014 tax year

Social Security Contributions and Benefits Act 1992 Section 2(1)(b) and section 15 

Social Security Contributions (Limited Liability Partnership) Regulations 2014 Regulations 2B, 2C, 3 and 4.

HMRC has reviewed its interpretation of the law and now considers that sleeping partners are, and should always have been, treated as gainfully employed for the purposes of section 2(1)(b) of the Social Security Contributions and Benefits Act 1992 because:

  • “employment” as defined in section 122 of the Social Security Contributions and Benefits Act 1992 includes business and section 1(1) of the Partnership Act 1890 provides that “Partnership is the relation which subsists between persons carrying on a business in common with a view of profit”; and
  • section 2(1)(b) of the Social Security Contributions and Benefits Act 1992 imposes no requirement that partners have to be active in the business.

HMRC also considers sleeping partners are, and should always have been, liable to pay Class 4 NICs because:

  • in order for there to be a partnership for the purposes of the Partnership Act 1890, all the partners (whether General Partners, Limited Partners or Limited Liability Partners) are “carrying on a business in common with a view of profit”; and
  • section 15 of the Social Security Contributions and Benefits Act 1992 imposes no requirement that partners have to be active in the business.

  • For General Partnership and Limited Partnerships, Class 2 and 4 liabilities will be enforced from the start of the 2013 to 2014 tax year in respect of that year and subsequent tax years.

  • For Limited Liability Partnerships, in accordance with Regulations 2B and 2C of the Social Security (Limited Liability Partnerships) Regulations 2014, Class 2 and 4 liabilities will be enforced from the start of the 2015 to 2016 tax year in respect of that tax year and subsequent tax years.

 

This does not apply to Salaried Members of Limited Liability Partnerships (LLPs) if the provisions of Regulations 3 or 4 of the Social Security Contributions (Limited Liability Partnerships) Regulations 2014 are applicable, under which Salaried Members of LLPs are to be treated as being employed in employed earners employment by the LLP.

See NIM24520, NIM24521, NIM24522, NIM24524