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Capital payments are, on basic principles, not earnings derived from an employment, although some are now deemed to be earnings (eg employee gains from unapproved share options¹ and loans via third parties under ITEPA 2003, Pt 7A. Self-employed business proprietors will pay Class 2 (up to 2023/24, see E8.301²) and Class 4 NICs each year. Class 4 liability arises on profits (the 'earnings' of a self-employed worker) immediately derived from the carrying on of a trade. If those profits were, instead, the profits of a limited company, they could potentially be accumulated and turned into a capital distribution in due course by sale, liquidation or other routes.

The capital might even be created initially on a sale of the business goodwill to the limited company on incorporation, with the new shareholder and former proprietor drawing the proceeds from a director's loan account over one or more years. The valuation of such goodwill transfers is an interesting exercise and inevitably a matter for negotiation with HMRC's Shares and Assets Valuation section. The right to amortise the purchased