NIC implications of incorporation

Produced by Tolley in association with

Owner-Managed Businesses

Guidance

Overview

The Incorporation ― introduction and procedure guidance note summarises various tax implications of incorporating a business. This note provides further details of the national insurance contributions (NIC) aspects.

When a sole trader transfers their business to a company, they will be changing their status for NIC purposes.

The obligation to pay Class 2 NIC is removed from 2024/25, for further details, see the Class 2 national insurance contributions guidance note. Therefore Class 2 NIC from 2024/25 remains in place to allow self-employed individuals with profits below the Lower Profits Limit to make voluntary contributions.

Sole traders pay NIC under Class 4 which are charged at the main Class 4 percentage on the trading profits between the lower profits limit and the upper profits limit. The additional Class 4 percentage is charged on profits above the upper profits limit.

The Class 4 limits and percentages are:

	2024/25 tax year	2023/24 tax year
Lower profits limit	£12,570	£12,570
Upper profits limit	£50,270	£50,270
Main Class 4 percentage	6%	9%
Additional Class 4 percentage	2%	2%

SSCBA

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Julie Butler

Managing Partner at Butler & Co Chartered Accountants & Registered Auditors

Julie Butler FCA is the managing partner of Butler & Co Chartered Accountants, a firm that specialises in agricultural and land matters. Julie has lectured extensively on proactive tax planning for farmers and landowners, with an emphasis on diversification and development. Julie's articles are published in the national accountancy and tax press and she is the author of the successful books Tax Planning for Farm and Land Diversification and Equine Tax Planning as well as being co-author of Stanley: Taxation of Farmers and Landowners with Malcolm Gunn.

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