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Here you can access summary of the key current tax developments in Ireland, the UK and internationally as reported by Chartered Accountants Ireland

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Sleeping and Inactive Limited Partners – Liability to Class 2 And 4 National Insurance Contributions

HMRC have contacted Chartered Accountants Ireland to advise that they now consider sleeping and inactive limited partners are now and have in the past been liable to pay Class 2 National Insurance contributions (NICs) as self-employed earners and Class 4 NICs in respect of their taxable profits. “Inactive Limited Partners” are Limited Partners who take no active part in running the business. This view represents a change from that previously held by HMRC and the Department for Work and Pensions.

Sleeping or inactive Limited Partners who have not paid Class 2 or Class 4 NICs for a past period will not be required by HMRC to pay those contributions.

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.

It is recommended therefore that Sleeping and inactive Limited Partners check their Class 2 NICs position now.

HMRC consider 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” and 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 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.

More details of the announcement are available on the HMRC website.