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This is a freeview 'At a glance' guide to sleeping partners and their liability to National Insurance.

Following a change of view, since 2013, HMRC have considered that sleeping or inactive Limited Partners are liable to pay Class 2 National Insurance contributions (NICs) as self-employed earners, and Class 4 NICs in respect of their taxable profits.

HMRC regard all partners as “gainfully employed” as self-employed earners for the purposes of section 2(1)(b) of the Social Security Contributions and Benefits Act 1992 because: 

Exemptions from Class 2 NICs apply if an inactive partner is either:

What to do

Payment of Class 4 NICs from 6 April 2013

HMRC now take the view that Sleeping and inactive Limited Partners are liable to pay Class 4 NICs because:

Voluntary payments of Class 2 and 4 NICs for years prior to the 2013-14 tax year

There may be instances where some Sleeping and inactive Limited Partners may wish to pay Class 2 and 4 NICs for years prior to the 2013-14 tax year in order to qualify for, or improve, contributory benefits, for example, the basic State Pension and they may do so.

Comment

The change of view may assist HMRC in combat some tax avoidance schemes, however, it looks as if it will catch out some quite innocent situations involving limited partnerships; structures which are favoured by private equity, as well as many family partnerships.

The Institute of Chartered Accountants in England and Wales (ICAEW) Tax Faculty says that it:

"...was surprised by this announcement. We are not aware of any previous discussion on the matter. We have raised a number of questions with HMRC about the basis for this new interpretation, and will publish further information for members when we can."

Useful guides on this topic

Partnerships: Unlimited or limited?
An introduction to partnerships. What types of partnership are there? What are the differences? 

National Insurance: What's the maximum payable?
What are the maximum limits for National Insurance Contributions (NICs)?

 

 


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