The following Owner-Managed Businesses guidance note by Tolley in association with Julie Butler provides comprehensive and up to date tax information covering:
The Incorporation ― introduction and procedure guidance note summarises various tax implications of incorporating a business. This note provides further details of the NIC aspects.
When a sole trader transfers his business to a company, he will be changing his status for NIC purposes.
Sole traders pay NIC under Class 2 and Class 4. Class 2 contributions are fixed (£3.00 per week for 2019/20) and are payable on an annual basis through the self-assessment system. For further details, see the Class 2 national insurance contributions guidance note.
Class 4 contributions are based on the taxable trading profits and are charged at 9% between the upper and lower profit limits and at 2% on profits in excess of the upper limit. The lower and upper limits for 2019/20 are £8,632 and £50,000 respectively.
Note that Class 4 NIC (like income tax) are charged on the taxable profits of the business for the tax year, irrespective of whether the trader draws the profits out of the business. The trader’s actual drawings are irrelevant for tax and NIC purposes.
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