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Is class 2 NIC payable in this case

Is class 2 NIC payable

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Husband & wife partnership.  Husband died part way through the 2019/20 tax year. Wife continued the business as a sole-trader.  The business is seasonal and makes very little profit (hill sheep farming with majority of livestock sales taking place in the two months of Sept & Oct ).   

Wife's share of profit for the whole business year to 31 March 2020 is £4,986 (below the class 2 threshold) but is reported on her tax return in two parts: 

£6,752 partnership profit for basis period 1.4.19 to  29.10.19 (date of husband's death) 

£ (1,766) sole-trader loss for basis period 30.10.19 to 31.3.20 (winter months are loss making with high feeding bills & few livestock sales) 

As the partnership element of the wife's profit exceeds the £6,365 threshold at which class 2 NIC becomes compulsory does she have to pay class 2 NIC given that her total annual profit from this one continuous business was below the threshold ?   

The tax return software I use (Ftax) requires the class 2 NIC liability to be calculated manually and will accept a zero value, but is it correct to record this as zero or is it payable for the weeks during which she was in partnership ?

Replies (17)

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Replying to ECC _90:
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By L Haldane
21st Jul 2020 16:30

Thank you , but this doesn't help as it relates to a situation where the tax payer had two separate self-employments one profitable & the other loss making.

In my client's case her self-employment relates to one single continuous business which has had to be split into two parts on her tax return because her husband died leaving her as a sole-surviving partner in the business.

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Replying to L Haldane:
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By Tax Dragon
21st Jul 2020 17:49

I think the other thread does help. CTA's contribution points you to the legislation. The legislation answers most questions.

If you followed the links through to s15 (SSCBA 1992), you'd see it imports the calculation of profits from ITTOIA. ITTOIA treats the trade as continuing, as you, Rammstein1 and Lion are familiar with. So you wouldn't get two numbers from two trades - you'd get one number from one trade. (Go by tax law here, not by how you have to show the position on the tax return, which is superficially at odds with, but does not overrule, the law.)

I may be wrong, but I don't think that NIC law distinguishes sole trade from partnership. Ibid s2 just talks about employed and self-employed earners. So it's possible that you don't even need to get as far as my observations above before you reach the same conclusion.

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Replying to Tax Dragon:
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By L Haldane
22nd Jul 2020 09:14

Thank you for your advice.

s15 (SSCBA 1992) relates to Class 4 NIC which is not applicable in my client's case, but in directing me to SSCBA 1992 I think I can rely on the wording in S11(4) to exempt my client from Class 2 NIC.

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Replying to L Haldane:
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By Tax Dragon
22nd Jul 2020 10:11

It's slightly odd to rely on s11(4) without using the definition in s11(3), which invokes s15 and thus ITTOIA. But whatever, I don't think anyone is disagreeing with your conclusion.

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By Rammstein1
21st Jul 2020 16:11

Isn't it a continuation of the business and not a new sole trade? You are treating it as two separate businesses.

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Replying to Rammstein1:
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By L Haldane
21st Jul 2020 16:43

Yes, it is a continuation of the same business, and that is my whole point. Her total profit from this one business is below the Class 2 threshold.

But following the death of her husband my client was left as the sole-surviving business partner, and so from the date of his death her trading activity can no longer be reported on the partnership pages of her tax return.

This, together with the seasonal nature of the business has caused the anomoly of a profit being reported for the partnership period of this business and a loss being reported for the sole-trader period, which in total is below the Class 2 threshold, but the partnership element of the profit is above the threshold and I am unsure as to whether or not this triggers a class 2 liability.

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Replying to L Haldane:
RLI
By lionofludesch
21st Jul 2020 17:19

L Haldane wrote:

Yes, it is a continuation of the same business, and that is my whole point. Her total profit from this one business is below the Class 2 threshold.

Imho, it's one business for a continuing partner, notwithstanding her becoming a sole trader.

What are her loss relief options and which option will she be taking ?

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Replying to lionofludesch:
RLI
By lionofludesch
22nd Jul 2020 09:46

lionofludesch wrote:

What are her loss relief options and which option will she be taking ?

Do we know this ?

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Replying to lionofludesch:
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By Tax Dragon
22nd Jul 2020 10:12

There isn't a loss.

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Replying to Tax Dragon:
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By lionofludesch
22nd Jul 2020 10:30

Fair point.

So profits below the threshold.

No problem.

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By Wanderer
21st Jul 2020 16:43

Leaving the prime question aside wouldn't she want to pay the Class 2 to make it a qualifying year?

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Replying to Wanderer:
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By L Haldane
21st Jul 2020 16:56

To make ends meet she also has a job for which she pays Class 1 contributions that clocked a qualifying year in 2019/20

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By SXGuy
21st Jul 2020 19:11

Problem is even if you override the class 2 to nil hmrc will add it back again given your completing both partnership and self employment pages.

Perhaps override the ni and put a note in the white space explaining what happend? Never had this situation before so not really sure other than that.

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Replying to SXGuy:
RLI
By lionofludesch
21st Jul 2020 19:31

SXGuy wrote:

Problem is even if you override the class 2 to nil hmrc will add it back again given your completing both partnership and self employment pages.

Perhaps override the ni and put a note in the white space explaining what happend? Never had this situation before so not really sure other than that.

Will you need to override it ?

Or will the software get it right??

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Replying to lionofludesch:
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By Paul Crowley
22nd Jul 2020 10:09

HMRC will ammend to put in place what HMRC have record of. Their record will show (probably) that Class 2 is due.

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Replying to Paul Crowley:
RLI
By lionofludesch
22nd Jul 2020 10:29

So £4986 then.

No class 2 due.

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