While voluntary class 2 national insurance contributions (NIC) were not affected by the Spring Statement (for the Accounting Practice round-up, click here) changes, class 4 losses might need recording separately, the ICAEW is advising.
The association explained that HMRC has confirmed individuals with adjusted trading profits up to the class 2 small profits threshold (SPT), which for 2022/23 is £6,725 (£6,515 in 2021/22), will continue to be able to make voluntary class 2 NIC in 2022/23 of £3.15 per week as is presently the case (£3.05pw in 2021/22).
This will include traders who make losses, because a trading loss is equivalent to a profit of nil for class 2 NIC purposes.
It said: “This follows the Spring Statement announcement that from 2022/23, traders with profits between the SPT and the class 4 lower profits limit (LPL) will not have to pay class 2 NIC but will nevertheless receive credit for that year in their national insurance contributions record.
“The credit in the contributions record will entitle them to claim state pension and contributory state benefits. In effect, it is a nil rate band, like the one for employees. The LPL for 2022/23 will be £11,908 and for 2023/24 onwards will be aligned with the income tax personal allowance of £12,570. Regulations will be laid in due course.
“By way of reminder, traders who make tax adjusted losses can carry them forward against future profits of the same trade when calculating class 4 NIC in subsequent years.
“ICAEW’s Tax Faculty suggest that where software does not capture the information, a record of losses for class 4 NIC purposes is maintained separately from losses for income tax because income tax losses and class 4 NIC losses can be offset differently (e.g. income tax losses can be used against income not subject to class 4 NIC).”