Yes - splicing is one option and yes the #4 aluminum neutral would have to enter the bottom of the new panel, then exit into a correct sized j-box, then back into the sub panel. Any splice inside the sub panel is out of the question due to space limitations. The new sub panel is flush mount since the shop is insulated, heated and weather/water tight - my second home. So why a watertight j-box?
Why would you have to exit and re-enter the panel again, crimp an inline lug onto the N and heat-shrink sleeve it, it takes up next to no room at all, maybe a few mm wider circumference on the joint itself.
You stated that the neutral is not long enough to make it to the panel. Having said that and your using aluminum wire you will need a 6x6x4 inch junction box approved for outdoor use.
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