ACCA Advanced Taxation (ATX) Practice Exam

In the first year of trading under self-assessment, a sole trader is required to pay Class 4 National Insurance Contributions (NIC) as a single sum the following January after the end of the tax year. This structure is in place because Class 4 NIC liabilities are calculated based on the profits of the previous tax year.

For example, if a sole trader begins trading on April 6, 2025, the profits earned from that date until April 5, 2026, will be assessed for Class 4 NICs when submitting the self-assessment tax return, which is due by January 31, 2027. At that time, the total NIC liability for the profits will need to be settled in one payment, making the January payment date significant for a first-year trader.

Other options focus on different methods of payment that do not apply in the first year of trading: paying on account in advance suggests anticipation of profits before they are known, and quarterly estimated sums imply ongoing incremental payments throughout the tax year, which is not required for a first-time sole trader. Lastly, the option regarding not paying until profits exceed a certain threshold is misleading; Class 4 NICs apply once profits exceed the set limit, but these payments