Respect NI liability in Carer's Allowance earnings

changelog.d/2360.fixed.md

@@ -0,0 +1 @@
+- Corrected Carer's Allowance earnings to deduct notional Class 2 and Class 4 National Insurance only when the carer is liable for those contributions.

policyengine_uk/tests/policy/baseline/gov/dwp/carers_allowance_earnings_limit.yaml

@@ -255,3 +255,69 @@
     carers_allowance_earnings: 6_146.60
     is_gainfully_employed_for_carers_allowance: false
     carers_allowance: 64.60 * 52
+
+- name: Case 18, a pension-age trader has no notional Class 2 deduction in 2018.
+  period: 2018
+  absolute_error_margin: 0.01
+  input:
+    age: 70
+    self_employment_income: 7_000
+    personal_pension_contributions: 1_400
+    state_pension: 6_000
+    care_hours: 40
+    country: ENGLAND
+  output:
+    # SSCBA 1992 s. 11(7)(b): no Class 2 after the week of State Pension
+    # age. 7,000 - 700 = 6,300, or £121.15 a week, above the £120 limit.
+    # State Pension already prevents a cash CA award, but the earnings
+    # limit also removes underlying entitlement and the PC carer addition.
+    ni_liable: false
+    carers_allowance_earnings: 6_300
+    is_gainfully_employed_for_carers_allowance: true
+    carers_allowance_pre_overlap: 0
+    carers_allowance: 0
+    is_entitled_to_carer_benefit: false
+    carer_minimum_guarantee_addition: 0
+
+- name: Case 19, a pension-age trader has no notional Class 4 deduction in 2026.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    age: 70
+    self_employment_income: 15_000
+    capital_allowances: 5_000
+    personal_pension_contributions: 7_700
+    state_pension: 10_000
+    care_hours: 40
+    country: ENGLAND
+  output:
+    # Contributions Regulations 2001 reg. 91(a): over State Pension age
+    # at the start of the tax year. 15,000 - 486 tax - 3,850 pension
+    # = 10,664, or £205.08 a week, above £204. Deducting Class 4 wrongly
+    # gives £202.27. Capital allowances still do not reduce reg. 14 profit.
+    ni_class_4_liable: false
+    carers_allowance_earnings: 10_664
+    is_gainfully_employed_for_carers_allowance: true
+    carers_allowance_pre_overlap: 0
+    carers_allowance: 0
+    is_entitled_to_carer_benefit: false
+    carer_minimum_guarantee_addition: 0
+
+- name: Case 20, Class 4 remains deductible in the tax year State Pension age is reached.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    # Born 6 June 1960, reaching SPA on 6 September 2026, after 6 April.
+    age: 66
+    months_since_last_birthday: 4
+    self_employment_income: 15_000
+    personal_pension_contributions: 7_700
+    care_hours: 40
+    country: ENGLAND
+  output:
+    # Class 4's tax-year exception differs from the general NI age flag.
+    ni_liable: false
+    ni_class_4_liable: true
+    carers_allowance_earnings: 10_518.20
+    is_gainfully_employed_for_carers_allowance: false
+    carers_allowance_pre_overlap: 86.45 * 52

policyengine_uk/variables/gov/dwp/carers_allowance_earnings.py

@@ -22,14 +22,17 @@ class carers_allowance_earnings(Variable):
         "Self-employment (regs. 13(4) and 14): trading profit less a notional "
         "income tax at the basic rate (the Scottish basic rate for a Scottish "
         "taxpayer) on the profit above the full personal allowance, and Class 4 "
-        "contributions at the main rate on the profit between the lower and "
-        "upper profits limits. Regulation 14(1) deducts the personal reliefs "
+        "contributions, where payable, at the main rate on the profit between "
+        "the lower and upper profits limits. Regulation 14(1) deducts the personal reliefs "
         "the claimant is entitled to, with no reduction for any allowance the "
         "pay uses, and capital expenditure is not deducted (reg. 13(6)(a)). "
         "Until 6 April 2024 reg. 14(2)(a) also deducted the Class 2 "
         "contributions payable on the chargeable profit; that paragraph was "
         "omitted with compulsory Class 2, whose flat rate is nil from "
-        "2024-25.\n\n"
+        "2024-25. Class 2 uses ni_liable's annual approximation of the "
+        "exemption after the week State Pension age is reached. Class 4 uses "
+        "ni_class_4_liable: reaching State Pension age during the tax year "
+        "leaves that year's contributions payable.\n\n"
         "Not modelled: the deduction for care charges (Schedule 3, up to half "
         "of net earnings) and the Schedule 1 disregards, so this can overstate "
         "earnings for a carer who pays for care while at work."
@@ -49,6 +52,14 @@ class carers_allowance_earnings(Variable):
             title="Social Security Benefit (Computation of Earnings) Regulations 1996 reg. 14",
             href="https://www.legislation.gov.uk/uksi/1996/2745/regulation/14",
         ),
+        dict(
+            title="Social Security Contributions and Benefits Act 1992 s. 11(7)",
+            href="https://www.legislation.gov.uk/ukpga/1992/4/section/11",
+        ),
+        dict(
+            title="Social Security (Contributions) Regulations 2001 reg. 91(a)",
+            href="https://www.legislation.gov.uk/uksi/2001/1004/regulation/91",
+        ),
     ]
 
     def formula(person, period, parameters):
@@ -87,18 +98,23 @@ def formula(person, period, parameters):
             income_tax.rates.uk.rates[0],
         )
         trading_tax = basic_rate * max_(0, profit - personal_allowance)
-        trading_class_4 = class_4.rates.main * max_(
-            0,
-            min_(profit, class_4.thresholds.upper_profits_limit)
-            - class_4.thresholds.lower_profits_limit,
+        trading_class_4 = (
+            person("ni_class_4_liable", period)
+            * class_4.rates.main
+            * max_(
+                0,
+                min_(profit, class_4.thresholds.upper_profits_limit)
+                - class_4.thresholds.lower_profits_limit,
+            )
         )
         # Reg. 14(2)(a), omitted from 6 April 2024: the Class 2 contributions
         # payable on the chargeable profit (SSCBA 1992 s. 11), on the
         # profit itself rather than ni_class_2's base after capital
         # allowances. The flat rate is nil from 2024-25.
         class_2 = p.national_insurance.class_2
         trading_class_2 = (
-            class_2_liable(profit, class_2)
+            person("ni_liable", period)
+            * class_2_liable(profit, class_2)
             * class_2.flat_rate
             * class_2_contribution_weeks(period.start.year)
         )