National Insurance Contributions - Sleeping And Inactive Partners And Agents


On 4 April 2013, HM Revenue & Customs (HMRC) announced that, following a review of its interpretation of the law, it now considers that all sleeping and inactive limited partners will be required to pay class 2 and class 4 national insurance contributions (NICs) from 6 April 2013.

“Inactive limited partners” are limited partners who take no active part in running the business.

This view is a change from that previously held by HMRC and the Department for Work and Pensions.

Reasons for change of view

HMRC now take the view that sleeping and inactive limited partners are liable to pay class 2 NICs as they are “gainfully employed” as self-employed earners and liable to pay class 4 NICs because the persons making up the partnership (whether general, sleeping or limited partners) will all be “carrying on a business in common with a view of profit”.

Response to change of view

The profession were surprised by this last minute announcement and HMRC is being asked to explain the background to the new interpretation, particularly as it seems to run contrary to the Government's Tax Policy Framework which says that changes should be consulted on before coming into operation.

Consequences of this change of view

Sleeping and inactive limited partners will be required to:

advise HMRC of their self-employed status and, if not already paying class 2 NICs, must arrange to pay class 2 NICs from the 2013/14 tax year of assessment or seek exception/deferment etc, according to their personal circumstances; and

account for class 4 NICs liability, if any, from the 2013/14 tax year of assessment.

Payment of class 2 NICs from 6 April 2013

Class 2 NICs is a weekly liability which will be due from 6 April 2013 (£2.70 per week), unless a sleeping or inactive limited partner is either:

under the age of 16;

over pension age;

is granted the small earnings exception;

is a married woman or widow with reduced liability; or

claims deferment on account of other employments.

Whilst many sleeping and inactive limited partners will qualify under one of these exceptions, there is still a need to ensure that the appropriate action has been taken in notifying HMRC of their self employed status.

Payment of class 4 NICs from 6 April 2013


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