From 6 April 2013 sleeping and inactive limited partners will be required to pay Class 2 NICs and Class 4 NICs after reviewing its interpretation of the law.
HMRC now take the view that sleeping and inactive limited partners are liable to pay Class 2 NICs because they are 'gainfully employed' as self-employed earners for the purposes of section 2(1)(b) of the Social Security Contributions and Benefits Act 1992.
Class 2 NICs is a weekly liability which will be due from 6 April 2013 unless a sleeping or inactive limited partner is either under 16, over pension age, is granted the Small Earnings Exception, is a married woman or widow with reduced liability, or claims deferment on account of other employments.
Sleeping and inactive limited partners will need to check their Class 2 NICs position. sleeping and inactive limited partners who are not already paying Class 2 NICs as a result of being self-employed must advise HMRC of their self-employed status and arrange to pay NICs or seek exception/deferment, etc, according to their individual circumstances. Many sleeping and inactive limited partners will qualify under one of these exceptions but there is a need to ensure that the appropriate action has been taken.
HMRC now take the view that sleeping and inactive limited partners are liable to pay Class 4 NICs because in order for there to be a partnership for the purposes of the Partnership Act 1890 the persons making up the partnership (whether general, sleeping or limited partners) will all be "carrying on a business in common with a view of profit". Also, section 15 of the Social Security Contributions and Benefits Act 1992 imposes no requirement that partners have to be active in the business.
Class 4 NICs is assessed annually but because HMRC has announced its revised view towards the end of 2012-13 tax year, sleeping and inactive limited partners should account for Class 4 NICs liability, if any, for the 2013 -14 tax year of assessment and for subsequent tax years.
Losses from earlier years, which have not yet been set against profits chargeable to Class 4 NIC, can be brought forward and set against Class 4 NICs profits from the same trade.
Further details are available from HMRC.
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