NATIONAL INSURANCE CONTRIBUTIONS (NIC)FOR THE SELF EMPLOYED


Following the Spring Budget Your Tax Shop, Tameside can announce the main rate of Class 4 contributions would be increased to 10% from April 2018 and to 11% from April 2019.

So where are we now with NICs and the self-employed?

Your Tax Shop in Tameside can confirm the following:

Current rules


The self-employed currently pay two Classes of NIC’s – Class 2 and Class 4.

Class 2 is a flat weekly rate payable where profits exceed the small profits threshold (set at £6,025 for 2017/18) for each week of self-employment in the tax year. For 2017/18, the Class 2 rate is £2.85 per week. It is Class 2 contributions that currently earn the self-employed rights to the state pension and certain contributory benefits.

Class 4 contributions are essentially a further tax on profits. They currently confer no benefit entitlement. For 2017/18, Class 4 contributions are payable at the main rate of 9% on profits between the lower profits limit of £8,174 and the upper profits limit of £45,000, and at the additional rate of 2% on profits above £45,000.

Both Class 2 and Class 4 contributions are now collected via the self-assessment system.

New rules from April 2018


NIC’S for the self-employed are to be reformed from April 2018.

Class 2 NIC’s are being abolished from 6 April 2018 and Class 4 reformed to take on the role of providing benefit entitlement for the self-employed.

The new-look Class 4 structure that will apply from that date will closely resemble Class 1 contributions as applied on an annual basis (as for, say, company directors). A new small profits limit will be introduced and aligned with the lower earnings limit for Class 1 purposes (£113 per week for 2017/18). A zero rate will apply to profits which fall between the small profits limit and the lower profits limit which, like the Class 1 equivalent, will earn state pension and benefit rights for self-employed earners whose profits fall in this band. As is currently the case, contributions will be payable at the main rate between the lower and upper profits limits, and at the additional rate on profits above the upper profits limit.

This change will mean that those with low taxable profits or losses will not qualify for a pension credit for a year, potentially reducing the amount of state pension an individual will receive in the future.

If your income is low it is worth considering if you should in fact make the voluntary class 3 contributions. If the low profits are a one off in a working life of around 50 years it is not likely to be an issue as you should still meet the 35-year requirement, but if you aren’t sure of your NIC history or have had a difficult few years of trading through the recession the voluntary contributions should be contemplated. It is also worth noting that it is taxable profits that determine the credit, so high capital allowances due to the Annual Investment Allowance could also mean that you wouldn’t qualify. The upfront cost of class3 NIC may seem a lot now, but it would quickly be recovered once you receive a full State Pension entitlement.

Your Tax Shop based in Mossley and Ashton highly recommended that you obtain a forecast if you haven’t done so already so that you can assess your personal circumstance and take any necessary action now to ensure a full entitlement to State Pension in the future, especially with the upcoming changes for the self-employed.

Should you require any help with this then please contact one of our team at our Mossley or Ashton offices.

NATIONAL INSURANCE CONTRIBUTIONS (NIC)FOR THE SELF EMPLOYED


Following the Spring Budget Your Tax Shop, Tameside can announce the main rate of Class 4 contributions would be increased to 10% from April 2018 and to 11% from April 2019.

So where are we now with NICs and the self-employed?

Your Tax Shop in Tameside can confirm the following:

Current rules


The self-employed currently pay two Classes of NIC’s – Class 2 and Class 4.

Class 2 is a flat weekly rate payable where profits exceed the small profits threshold (set at £6,025 for 2017/18) for each week of self-employment in the tax year. For 2017/18, the Class 2 rate is £2.85 per week. It is Class 2 contributions that currently earn the self-employed rights to the state pension and certain contributory benefits.

Class 4 contributions are essentially a further tax on profits. They currently confer no benefit entitlement. For 2017/18, Class 4 contributions are payable at the main rate of 9% on profits between the lower profits limit of £8,174 and the upper profits limit of £45,000, and at the additional rate of 2% on profits above £45,000.

Both Class 2 and Class 4 contributions are now collected via the self-assessment system.

New rules from April 2018


NIC’S for the self-employed are to be reformed from April 2018.

Class 2 NIC’s are being abolished from 6 April 2018 and Class 4 reformed to take on the role of providing benefit entitlement for the self-employed.

The new-look Class 4 structure that will apply from that date will closely resemble Class 1 contributions as applied on an annual basis (as for, say, company directors). A new small profits limit will be introduced and aligned with the lower earnings limit for Class 1 purposes (£113 per week for 2017/18). A zero rate will apply to profits which fall between the small profits limit and the lower profits limit which, like the Class 1 equivalent, will earn state pension and benefit rights for self-employed earners whose profits fall in this band. As is currently the case, contributions will be payable at the main rate between the lower and upper profits limits, and at the additional rate on profits above the upper profits limit.

This change will mean that those with low taxable profits or losses will not qualify for a pension credit for a year, potentially reducing the amount of state pension an individual will receive in the future.

If your income is low it is worth considering if you should in fact make the voluntary class 3 contributions. If the low profits are a one off in a working life of around 50 years it is not likely to be an issue as you should still meet the 35-year requirement, but if you aren’t sure of your NIC history or have had a difficult few years of trading through the recession the voluntary contributions should be contemplated. It is also worth noting that it is taxable profits that determine the credit, so high capital allowances due to the Annual Investment Allowance could also mean that you wouldn’t qualify. The upfront cost of class3 NIC may seem a lot now, but it would quickly be recovered once you receive a full State Pension entitlement.

Your Tax Shop based in Mossley and Ashton highly recommended that you obtain a forecast if you haven’t done so already so that you can assess your personal circumstance and take any necessary action now to ensure a full entitlement to State Pension in the future, especially with the upcoming changes for the self-employed.

Should you require any help with this then please contact one of our team at our Mossley or Ashton offices.

NATIONAL INSURANCE CONTRIBUTIONS (NIC)FOR THE SELF EMPLOYED


Following the Spring Budget Your Tax Shop, Tameside can announce the main rate of Class 4 contributions would be increased to 10% from April 2018 and to 11% from April 2019.

So where are we now with NICs and the self-employed?

Your Tax Shop in Tameside can confirm the following:

Current rules


The self-employed currently pay two Classes of NIC’s – Class 2 and Class 4.

Class 2 is a flat weekly rate payable where profits exceed the small profits threshold (set at £6,025 for 2017/18) for each week of self-employment in the tax year. For 2017/18, the Class 2 rate is £2.85 per week. It is Class 2 contributions that currently earn the self-employed rights to the state pension and certain contributory benefits.

Class 4 contributions are essentially a further tax on profits. They currently confer no benefit entitlement. For 2017/18, Class 4 contributions are payable at the main rate of 9% on profits between the lower profits limit of £8,174 and the upper profits limit of £45,000, and at the additional rate of 2% on profits above £45,000.

Both Class 2 and Class 4 contributions are now collected via the self-assessment system.

New rules from April 2018


NIC’S for the self-employed are to be reformed from April 2018.

Class 2 NIC’s are being abolished from 6 April 2018 and Class 4 reformed to take on the role of providing benefit entitlement for the self-employed.

The new-look Class 4 structure that will apply from that date will closely resemble Class 1 contributions as applied on an annual basis (as for, say, company directors). A new small profits limit will be introduced and aligned with the lower earnings limit for Class 1 purposes (£113 per week for 2017/18). A zero rate will apply to profits which fall between the small profits limit and the lower profits limit which, like the Class 1 equivalent, will earn state pension and benefit rights for self-employed earners whose profits fall in this band. As is currently the case, contributions will be payable at the main rate between the lower and upper profits limits, and at the additional rate on profits above the upper profits limit.

This change will mean that those with low taxable profits or losses will not qualify for a pension credit for a year, potentially reducing the amount of state pension an individual will receive in the future.

If your income is low it is worth considering if you should in fact make the voluntary class 3 contributions. If the low profits are a one off in a working life of around 50 years it is not likely to be an issue as you should still meet the 35-year requirement, but if you aren’t sure of your NIC history or have had a difficult few years of trading through the recession the voluntary contributions should be contemplated. It is also worth noting that it is taxable profits that determine the credit, so high capital allowances due to the Annual Investment Allowance could also mean that you wouldn’t qualify. The upfront cost of class3 NIC may seem a lot now, but it would quickly be recovered once you receive a full State Pension entitlement.

Your Tax Shop based in Mossley and Ashton highly recommended that you obtain a forecast if you haven’t done so already so that you can assess your personal circumstance and take any necessary action now to ensure a full entitlement to State Pension in the future, especially with the upcoming changes for the self-employed.

Should you require any help with this then please contact one of our team at our Mossley or Ashton offices.