NIC implications of incorporation

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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.

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:

	2025/26 tax year	2024/25 tax year
Lower profits limit	£12,570	£12,570
Upper profits limit	£50,270	£50,270
Main Class 4 percentage	6%	6%
Additional Class 4 percentage	2%	2%

SSCBA 1992, s 15(3), (3ZA)

Note that Class 4 NIC (like income tax) are charged on the taxable profits of the business for the tax year, irrespective of whether the trader draws the profits out of the business. The trader’s

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Julie Butler

Managing Partner at Butler & Co Chartered Accountants & Registered Auditors

Julie Butler FCA is the founding director 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 and her team provide tax consultancy services direct to the farming and equine industry and to other accountants, land agents and solicitors on farming diversification, bloodstock and all areas of the equine world.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. Julie is also editor of Farm Tax Brief and contributes to Tolley's Tax Planning.Julie is an authorised individual licensed by the ICAEW to carry out the reserved legal activity of non-contentious probate in England and Wales.

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