Class 4 NICs ignore capital allowances, trading losses and the trading allowance #1916

ni_class_4, ni_class_4_main and ni_class_4_maximum take profits as raw self_employment_income. That figure ignores three things that reduce the profits Class 4 is charged on:

• Capital allowances. They are given effect as a trade expense (CAA 2001 s. 247), so they reduce the trade's profits.
• The trading allowance. It recomputes the trade's profits: nil where receipts are within it (ITTOIA 2005 s. 783AF), receipts less the allowance on partial relief (s. 783AI). HMRC BIM86052 says the allowance "is deducted in determining the profits chargeable to income tax under Chapter 2, Part 2, ITTOIA", so no Class 4 is due on income it covers.
• Trading losses. SSCBA 1992 Sch. 2 para. 3 lets losses reduce Class 4 profits under ITA 2007 ss. 64, 72, 83 and 89. The rules differ from income tax. A loss only ever reduces trade profits for Class 4. Where income tax sets it against other income, para. 3(4) still treats it as reducing that year's Class 4 profits, and carries any excess forward to later years' profits, "and so on".

SSCBA 1992 s. 15(1)(b) and Sch. 2 para. 2 charge Class 4 on profits "chargeable to income tax under Chapter 2 of Part 2" of ITTOIA 2005, computed in accordance with Sch. 2 (s. 15(3)). Regulation 100 of SI 2001/1004 works out the annual maximum on the same profits.

Income tax already deducts all three through taxable_self_employment_income. After #1881, the trading allowance is exact when self_employment_gross_receipts is supplied.

In the enhanced FRS 2024-25 (1.56.16), capital allowances and loss relief total £0, and receipts are unknown. So the revenue effect is expected to be about nil today. Household calculations with these inputs overstate Class 4.