HMRC now takes 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 because:
- ‘employment’ as defined in Section 122 of the Social Security Contributions and Benefits Act 1992 includes business and Section 1(1) of the Partnership Act 1890 provides that ‘partnership is the relation which subsists between persons carrying on a business in common with a view of profit’
- Section 2(1)(b) of the Social Security Contributions and Benefits Act 1992 imposes no requirement that partners have to be active in the business.
Class 2 NICs is a weekly liability (normally flat rate £2.70 per week from 6 April 2013) which will be due from 6 April 2013 unless a sleeping or inactive limited partner is either under 16, is 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 will therefore be necessary for sleeping and inactive limited partners to check their Class 2 NICs position. Sleeping and inactive limited partners who are not already paying Class 2 NICs as a result of being self-employed must advise HMRC of their self-employed status and arrange to pay NICs or seek exception/deferment, etc., according to their individual circumstances.
Many sleeping and inactive limited partners will qualify under one of these exceptions but there is a need to ensure that the appropriate action has been taken. The application form for partners to register for Class 2 NICs and self assessment can be downloaded here.
Sleeping and inactive limited partners who are not already paying Class 2 NICs should register on form SA401. Such partners should record the nature of the business being carried out at box 15 on the form as either sleeping partner or inactive limited partner.
An application for deferment of payment of Class 2 and/or Class 4 National Insurance contributions can be made by submitting form CA72B, while further guidance in respect of deferment is also available.