NIC implications of incorporation

Produced by Tolley in association with Julie Butler
NIC implications of incorporation

The following Owner-Managed Businesses guidance note Produced by Tolley in association with Julie Butler provides comprehensive and up to date tax information covering:

  • NIC implications of incorporation
  • NIC annual maxima rules

Overview

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 (£3.05 per week for 2020/21, £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 2020/21 are £9,500 and £50,000 respectively (2019/20 £8,632 and £50,000).

Note that Class 4 NIC (like in

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