Limited partner national insurance contributions

Changes to business regulations happen at two common commencement dates – in April and October – each year. As well as the headline changes to redundancy consultation periods and employment tribunal procedures introduced this April, changes to national insurance contributions (NICs) for ‘sleeping and inactive’ limited partners have also been announced by HM Revenue & Customs (HMRC).

As of 6 April 2013, HMRC confirmed that limited partners will now be required to pay NICs. Consequently, sleeping partners – those who take no active part in the running of a business – and inactive limited partners will be required to pay Class 2 and Class 4 NICs on taxable profits, on the grounds that they are self-employed earners.

Key things to consider:

  • Sleeping and inactive limited partners must now inform HMRC of their self-employed status and arrange to pay NICs, or to arrange exception or deferment. This will be based on individual circumstances
  • The changes relate to the 2013/14 tax year beginning on 6 April 2013, and subsequent tax years
  • Sleeping or inactive limited partners who have not previously paid Class 2 or Class 4 NICs will not be required by HMRC to pay past tax-year contributions
  • Sleeping and inactive limited partners who have already paid Class 2 and Class 4 NICs for past tax-years will not be entitled to a refund.

Commenting on the changes, the Institute of Chartered Accountants in England and Wales (ICAEW) said: “The Tax Faculty 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.”

Please talk to us to discuss any queries regarding national insurance contributions.