NIM24001 - Class 4 liability: general

Section 15 of the Social Security Contributions and Benefits Act (SSCBA) 1992

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

Self-employed contributors, whose profits or gains are chargeable for Income Tax under Chapter 2 of Part 2 of ITTOIA, (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 paid as a percentage of profits or gains, between a lower and an upper profit limit, chargeable for Income Tax 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 ends 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 do not count for contributory benefits and State Pension but 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 Self Assessment. For further guidance about assessment of Income Tax on trade profits see BIM14000 which covers, amongst other things, those reliefs which are not available within a Class 4 context.