ACCA Advanced Taxation (ATX) Practice Exam

What must a sole trader do by 31 January in the year after registration for self-assessment?

1. Pay all outstanding debts immediately

2. File their business plan with HMRC

3. Pay Class 2 NIC

4. Submit income returns

The correct answer is: Pay Class 2 NIC

A sole trader must pay Class 2 National Insurance Contributions (NIC) by 31 January in the year following their registration for self-assessment. This deadline aligns with the requirement for individuals to settle their tax liabilities, including NICs, for the previous tax year, which runs from 6 April to 5 April. Class 2 NICs are a fixed weekly amount that contribute toward benefits such as the state pension and other entitlements. For sole traders, paying these contributions is essential to ensure they remain eligible for these benefits and also to comply with their tax obligations. Other options do not hold this requirement. For instance, while finances and planning are critical for a business, there is no obligation for a sole trader to file a business plan with HMRC. Similarly, while submitting income returns is an essential activity for tax purposes, the specific requirement in this context relates directly to the payment of Class 2 NICs. Therefore, by 31 January following their registration for self-assessment, it is imperative that sole traders focus on fulfilling their NIC obligations.