Charge Class 4 NICs on Chapter 2 profits, after capital allowances, the trading allowance and Schedule 2 losses

changelog.d/1916.fixed.md

@@ -0,0 +1 @@
+- Charged Class 4 NICs on the profits chargeable under ITTOIA 2005 Part 2 Chapter 2, after capital allowances and the trading allowance, less trading losses under SSCBA 1992 Sch. 2 para. 3 (new `ni_class_4_profits`). Losses reduce only trade profits for Class 4 and carry forward until used.

changelog.d/class-4-chapter-2-profits.fixed.md

@@ -0,0 +1,3 @@
+- Counted a trading loss for Class 4 NICs only in the year it is entered for, so a one-off `trading_loss` is relieved once and only its unrelieved part reduces later years' profits (new `ni_class_4_trading_loss`).
+- Isolated supplied-input provenance between simulation clones and removed it for deleted inputs, preventing Class 4 from relieving cached carry-over losses again.
+- Corrected the Class 4 property-test reference to use each year's trading allowance parameter, including the zero allowance in historical years.

docs/book/programs/gov/hmrc/national-insurance.ipynb

@@ -22,7 +22,7 @@
     "- **Class 1**: Paid by employees and their employers. This is based on the employee's earnings and is deducted directly from wages.\n",
     "- **Class 2**: Paid by self-employed people with profits above a certain threshold.\n",
     "- **Class 3**: Voluntary contributions, often made by people who want to fill gaps in their National Insurance record.\n",
-    "- **Class 4**: Paid by self-employed people with profits above a certain threshold, in addition to Class 2 NICs."
+    "- **Class 4**: Paid by self-employed people with profits above a certain threshold (in addition to Class 2 NICs before April 2024)."
    ]
   },
   {
@@ -171,7 +171,7 @@
   {
    "cell_type": "markdown",
    "metadata": {},
-   "source": "## How PolicyEngine computes National Insurance liability\n\nFor each person, PolicyEngine computes NI contributions class-by-class:\n\n- **Class 1 employee** (`ni_class_1_employee`): the sum of `ni_class_1_employee_primary` (main rate on earnings between the Primary Threshold and the Upper Earnings Limit) and `ni_class_1_employee_additional` (additional rate on earnings above the UEL). These primary contributions are due from age 16 until state pension age (`ni_liable`): SSCBA 1992 s.6(3) ends them at pensionable age.\n- **Class 1 employer** (`ni_class_1_employer`): paid on earnings above the Secondary Threshold; surfaced through the `ni_employer` variable. These secondary contributions are due on earners over 16 with no upper age limit (`ni_class_1_secondary_liable`), so employers keep paying them for employees over state pension age (SSCBA 1992 s.6(1)(b) and s.6(3)).\n- **Class 2** (`ni_class_2`): a flat weekly rate paid by the self-employed with profits above the Small Profits Threshold.\n- **Class 3** (`ni_class_3`): a voluntary flat weekly rate; the variable is exposed but defaults to zero unless explicitly set.\n- **Class 4** (`ni_class_4`): main rate between the Lower and Upper Profits Limits plus additional rate above the UPL. Where the person also pays primary Class 1 contributions (or, before 6 April 2024, Class 2 contributions), liability is capped at the annual maximum in regulation 100 of the Social Security (Contributions) Regulations 2001 (`ni_class_4_maximum`).\n\nThe individual total `national_insurance` sums the four employee and self-employed components directly — `ni_class_1_employee + ni_class_2 + ni_class_3 + ni_class_4` — so voluntary Class 3 contributions are included in the household-side liability. The convenience aggregates `ni_employee` (Class 1 employee only) and `ni_self_employed` (Class 2 + Class 4) are also exposed for reporting. The Class 1 *employer* charge (`ni_class_1_employer`, surfaced as `ni_employer`) is an employer-side cost rather than part of the individual's `national_insurance`, so it is tracked separately and feeds the government revenue aggregates on its own.\n\nParameters live in `policyengine_uk/parameters/gov/hmrc/national_insurance/` and the per-class formulas in `policyengine_uk/variables/gov/hmrc/national_insurance/`."
+   "source": "## How PolicyEngine computes National Insurance liability\n\nFor each person, PolicyEngine computes NI contributions class-by-class:\n\n- **Class 1 employee** (`ni_class_1_employee`): the sum of `ni_class_1_employee_primary` (main rate on earnings between the Primary Threshold and the Upper Earnings Limit) and `ni_class_1_employee_additional` (additional rate on earnings above the UEL). These primary contributions are due from age 16 until state pension age (`ni_liable`): SSCBA 1992 s.6(3) ends them at pensionable age.\n- **Class 1 employer** (`ni_class_1_employer`): paid on earnings above the Secondary Threshold; surfaced through the `ni_employer` variable. These secondary contributions are due on earners over 16 with no upper age limit (`ni_class_1_secondary_liable`), so employers keep paying them for employees over state pension age (SSCBA 1992 s.6(1)(b) and s.6(3)).\n- **Class 2** (`ni_class_2`): a flat weekly rate paid by the self-employed with profits above the Small Profits Threshold.\n- **Class 3** (`ni_class_3`): a voluntary flat weekly rate; the variable is exposed but defaults to zero unless explicitly set.\n- **Class 4** (`ni_class_4`): main rate between the Lower and Upper Profits Limits plus additional rate above the UPL, charged on `ni_class_4_profits`. Those are the trade profits chargeable to income tax under ITTOIA 2005 Part 2 Chapter 2 (`ni_class_4_profits_before_losses`: self-employment profit after capital allowances and the trading allowance), less trading losses as SSCBA 1992 Schedule 2 paragraph 3 allows (`ni_class_4_loss_relief`). A loss reduces only trade profits for Class 4: each year's losses (those brought forward, then the year's own loss, `ni_class_4_trading_loss`) are set against that year's trade profits, and the rest is carried forward until used (`ni_class_4_losses_brought_forward`, `ni_class_4_losses_carried_forward`). A year's own loss is the `trading_loss` entered for that year, so a loss entered once is relieved once: it is not counted again in the later years that `trading_loss` carries into. Carry-back claims and the paragraph 3(5) deductions for trade interest and royalties are not modelled. Where the person also pays primary Class 1 contributions (or, before 6 April 2024, Class 2 contributions), liability is capped at the annual maximum in regulation 100 of the Social Security (Contributions) Regulations 2001 (`ni_class_4_maximum`).\n\nThe individual total `national_insurance` sums the four employee and self-employed components directly — `ni_class_1_employee + ni_class_2 + ni_class_3 + ni_class_4` — so voluntary Class 3 contributions are included in the household-side liability. The convenience aggregates `ni_employee` (Class 1 employee only) and `ni_self_employed` (Class 2 + Class 4) are also exposed for reporting. The Class 1 *employer* charge (`ni_class_1_employer`, surfaced as `ni_employer`) is an employer-side cost rather than part of the individual's `national_insurance`, so it is tracked separately and feeds the government revenue aggregates on its own.\n\nParameters live in `policyengine_uk/parameters/gov/hmrc/national_insurance/` and the per-class formulas in `policyengine_uk/variables/gov/hmrc/national_insurance/`."
   },
   {
    "cell_type": "markdown",

policyengine_uk/simulation.py

@@ -9,7 +9,7 @@
 # PolicyEngine core imports
 from policyengine_core.data import Dataset
 from policyengine_core.enums import Enum as CoreEnum
-from policyengine_core.periods import period as period_
+from policyengine_core.periods import Period, period as period_
 from policyengine_core.parameters import Parameter
 from policyengine_core.reforms import Reform
 from policyengine_core.simulations import Simulation as CoreSimulation
@@ -30,6 +30,10 @@
 )
 from policyengine_uk.data.dataset_sources import materialize_gcs_dataset_url
 from policyengine_uk.utils.dependencies import get_variable_dependencies
+from policyengine_uk.utils.supplied_inputs import (
+    SUPPLIED_INPUT_VARIABLES,
+    drop_missing_supplied_inputs,
+)
 from policyengine_uk.reforms import create_structural_reforms_from_parameters
 from policyengine_uk.parameters.gov.simulation.labour_supply_responses.aliases import (
     canonicalize_lsr_parameter_path,
@@ -219,6 +223,30 @@ def __init__(
             if scenario.parameter_changes is not None:
                 self.apply_parameter_changes(scenario.parameter_changes)
 
+    def clone(
+        self,
+        debug: bool = False,
+        trace: bool = False,
+        clone_tax_benefit_system: bool = True,
+    ) -> "Simulation":
+        clone = super().clone(debug, trace, clone_tax_benefit_system)
+        # policyengine-core 3.32.9: simulations/simulation.py::Simulation.clone
+        # shallow-copies __dict__, while holders/holder.py::Holder.clone copies
+        # value storage. Holder.set_input's provenance and context must belong
+        # to the same simulation as that storage, including for plain clones.
+        clone._user_input_keys = set(getattr(self, "_user_input_keys", ()))
+        clone._user_input_contexts = list(getattr(self, "_user_input_contexts", ()))
+        return clone
+
+    def delete_arrays(self, variable: str, period: Period = None) -> None:
+        super().delete_arrays(variable, period)
+        # policyengine-core's Simulation.delete_arrays and
+        # holders/holder.py::Holder.delete_arrays remove storage, but retain
+        # provenance keys. Drop those keys before carry-over can refill storage.
+        # Inspect storage after core's deletion to honour period containment
+        # and the current branch, ancestor branches and default branch.
+        drop_missing_supplied_inputs(self, variable)
+
     def reset_calculations(self):
         for variable in self.tax_benefit_system.variables:
             if variable not in self.input_variables:
@@ -616,6 +644,12 @@ def calculate(
 
         period = period_(period)
 
+        if variable_name in SUPPLIED_INPUT_VARIABLES:
+            # A value deleted straight from the holder leaves its input record
+            # behind. Forget it before the engine can refill the period with a
+            # carried-over value that the record would pass off as supplied.
+            drop_missing_supplied_inputs(self, variable_name)
+
         return super().calculate(
             variable_name, period, map_to=map_to, decode_enums=decode_enums
         )

policyengine_uk/tests/conftest.py

@@ -16,6 +16,19 @@
     os.environ["POLICYENGINE_UK_DEFAULT_DATASET"] = DEFAULT_TEST_DATASET_URL
 
 
+@pytest.fixture(scope="module")
+def cloned_uk_tax_benefit_system():
+    """Load model code once, with independent model state per simulation."""
+    import policyengine_uk.simulation as uk_simulation
+
+    tax_benefit_system = uk_simulation.CountryTaxBenefitSystem()
+    with pytest.MonkeyPatch.context() as monkeypatch:
+        monkeypatch.setattr(
+            uk_simulation, "CountryTaxBenefitSystem", tax_benefit_system.clone
+        )
+        yield
+
+
 def pytest_collection_modifyitems(config, items):
     has_default_dataset = bool(os.environ.get("POLICYENGINE_UK_DEFAULT_DATASET"))
     if has_default_dataset: