Being self employed isn’t always a bed of roses. Whilst being your own boss and working on your own terms and timetable can be deeply satisfying, having to deal with your own tax payments can be a pain in the neck. Once you’ve done your own research and developed your own system on how to file your accounts in a timely and efficient manner, then all will be smooth sailing.
Know what it is:
People who are self employed and have their annual profits over a certain amount will have to pay the Class 4 National Insurance Contribution as well as the Class 2 contributions, which are fixed weekly amounts paid also by the self employed.
The amount to pay on your national insurance contributions is based on your profits for that tax year. You will need to pay 9% on annual profits between £7, 755 and £41,450 (as of 2013-14) and 2% on any profit over that amount.
How to pay:
First, you will need to work out your national insurance contributions on your Self-Assessment tax return. Then pay this together with your income tax. Take note though – your contributions won’t count towards benefit entitlements. If however, you are lucky enough to have more than one business, there are special rules you can apply for calculating the adjustments on your profits.
For your convenience, it is best to file your return online: your class 4 national insurance contributions will be automatically worked out for you. Alternatively, if you prefer to do it by mail and send it in by the 31 October following the end of the tax year – make sure you leave the space blank, so that the HMRC will also work out your contributions for you. On the other hand, if you would like to do your own calculations, you can do by using the Class 4 calculator, which you will find in the notes that come with your tax return supplement.
The following are exempted from paying the Class 4 National Insurance:
- Those under 16 years old. However, they will have to apply for an exemption by filling in form CA2835U which they can get from the HMRC.
- People working in the tax year after they’ve reached State Pension. To know more about this go to: www.hmrc.gov.uk.
- People who are not a resident in the UK for tax purposes. To know more about this go to: http://search2.hmrc.gov.uk/kb5/hmrc/forms/view.page?record=UKkNvDQp7sI&formid=3717
The State Pension Age
Whilst this information may not be helpful to you at the moment, it always is an advantage to know as much as you can about the Class 4 national insurance contributions, as this may ultimately effect your state pension.
As mentioned , people who have reached this age are exempted from paying this. If their birthday falls on the 6th of April, they are exempted from paying. However, if they are completing a tax return for the tax year 6th of April to 5th of April 2015, they still need to pay the class 4 national insurance contributions for that year. Additionally, if they reach the state pension age during the tax year, they will still need to pay for the entire year.
Lastly, if you are still unsure of what to do regarding your class 4 national insurance contributions – don’t hesitate to get in touch with the HMRC, they are just a phone call away. Remember, it’s better to ask all the questions now, than regret it later. You are your own boss and employee, so it is your task to ensure that your ship runs smoothly.
image source: flickr