Transition profits. Class 4?

Is Class 4 NIC chargeable on transition profits?

Didn't find your answer?

I am just doing my first transition tax return for a client with a 30 April year end.

My tax software is calculating the additional income tax on the one fifth transition profit but is not charging class 4 NIC on it. Is this correct?

I have googled this and some websites specify that Class 4 IS chargeable but BIM81320 shows examples of charging income tax only.

Replies (7)

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By Tax Dragon
28th May 2024 21:41

Putting s15 SSCBA next to paras 70(2) and 72(3),(4) of Sch 1 FA 2022, I would answer "yes". I would expect anything that overturned that position to be enacted in Pt3 of Sch 1.

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RLI
By lionofludesch
28th May 2024 21:45

What software?

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Replying to lionofludesch:
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By sirp2000
28th May 2024 21:50

Digita Personal Tax.

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By lionofludesch
28th May 2024 23:00

Just to be crystal clear, the software isn't charging NI4 on transitional profits at all. As opposed to charging it but not allowing you to spread it.

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Replying to lionofludesch:
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By sirp2000
28th May 2024 23:22

Yes - it is charging income tax on the 2023/24 one fifth transition profit but not charging NI4 at all. I have just made a test dummy submission to HMRC (Digita calls this "Test in Live") and it seems to have been accepted.

It therefore appears to be correct. I am surprised as with all the technical publications issued on the subject, I have never seen it stated that the transition profits would be exempt from NI4. It is welcome, but odd that it has not been publicised.

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By Ardeninian
29th May 2024 16:05

Class 4 NICs are due on the amount of transition profit charged to income tax. As Tax Dragon has pointed out, this is because Class 4 is charged on any profits charged under Chapter 2 Part 2 ITTOIA (s15 SSCBA), and Sch 1 FA22 makes clear that this is what transition profits are charged under.

Also, if you look at the manual calculation notes published by HMRC (the notes to the SA110, https://www.gov.uk/government/publications/self-assessment-tax-calculati...) you'll see transition profits included in the Class 4 NICs calculation on page 34 (boxes D2a and D5a).

So your software is wrong and you should make your software provider aware of that.

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By Jimess
03rd Jun 2024 11:14

Check the profits chargeable to class 4. On BTC the tax on transitional profits is shown as a stand alone charge at the appropriate rate. For class 4 the transitional profits chargeable are added to the trading profits and an overall class 4 charge is calculated on the whole amount. I suspect it is done this way to ensure the lower and upper limits for class 4 are applied correctly. It had me foxed for a while, but when I ran a manual calculation to check I realised how it worked.

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