Being self-employed was becoming less popular with all the advantages around dividends and tax efficient ways of withdrawing funds from limited companies.
But with the increase in dividend tax and a reduction in tax free dividends, we don’t know what is round the corner – soon may see an increase in self-employment again.
The government has a plan. As always, it’s not set in stone. But the plan is to abolish Class 2 National Insurance contributions from April next year.
But we all know what these plans are like, with 8 months to go, it’s clear, its concise and everyone knows what’s happening, right?! Wrong.
In a recent webinar by HMRC they actually only focused on the current regime and how that applies.
So, not being one to deprive you of information – I’ll try tell you as much as I can.
First things first. You must tell HMRC when you start being self-employed (and when you stop). At which time you also register for NIC, this is dead easy and can be done online in a matter of minutes.
Note: You need your National Insurance number to hand whilst doing this.
From the age of 16, contributions are charged weekly at £2.85, this liability only applies when the small profit threshold is reached at £6,025.
If profits are below this level you are not liable to pay but if you want to make the contributions to be eligible (for the state benefits etc) you can voluntary pay the £2.85 per week.
Although it is calculated weekly, it is paid on an annual basis usually with your self assessment tax return.
The entitlement Class 2 NI contributions give you will be passed over to Class 4 from April 2018.
All the profits you make over the lower profit limit (currently at £8,164) will be chargeable at 9% and a further 2% for anything over £45,000.
Again, this is payable from your self-assessment tax return and can be paid on account, meaning if the tax due is over £1,000 you will have to contribute towards the following years predicted liability.
‘But Mystic Meg, what does the future hold’ I hear you cry…
Well, in true psychic style – it’s looking hazy.
Class 2 NIC is to be abolished all together and Class 4 is basically the way you will earn your entitlement to state benefits (such as a pension when you retire)
The rate for Class 4? Well you know the government as well as I do, they like to change their mind like they change their… Socks. In the spring budget they said it would increase to 10% then 11% by 2018. Which in all fairness, if they are pairing the two together, you would expect it to increase. However, an increase of 1% would have been enough, wouldn’t it?!
As always, we’ll keep you up to date on what you need to know.
Talk to us today about accounting for tomorrow.
*Disclaimer: All rates are correct at 2017 / 2018 rates.