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HMRC internal manual

National Insurance Manual

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.