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Self-employed : Small Earnings Certificate for previous years
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# 1
MoonDragon
Old 02-02-2013, 6:05 PM
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Default Self-employed : Small Earnings Certificate for previous years

Hi all,

I set up a limited company in 2009 and my profit and loss account was alltime less than 5000 and i did not also paid for Class 2 National Insurance Contribution.

However, I have forgotten to apply to the Small Earnings Exception certificate (i was relying on my account who was a bit negligent) and presently I am urgently needing this certificate to prove that I am really self employed.

Thanks in advance for your help.

SilverOne

Last edited by MoonDragon; 02-02-2013 at 6:35 PM.
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# 2
Dazed and confused
Old 02-02-2013, 7:38 PM
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I may be missing something here but if you set up a limited company then surely that means you weren't self employed but were a company director and as such class 2 nic isn't relevant to you (unless may you were actually self employed in some other venture?)
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# 3
PlutoinCapricorn
Old 02-02-2013, 10:17 PM
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Default Small earnings

Yes, Class 2 NI contributions and the small earnings exemption apply to sole traders, not limited companies.
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# 4
MoonDragon
Old 03-02-2013, 3:38 AM
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Quote:
Originally Posted by Dazed and confused View Post
I may be missing something here but if you set up a limited company then surely that means you weren't self employed but were a company director and as such class 2 nic isn't relevant to you (unless may you were actually self employed in some other venture?)
Hello, I think you are right : I worked as a company director (but I am alone in the company) but did two contractors job. When filling the Employment and Support Allowance form (i am presently sick) there was just a field for self-employed person that i used. And the DWP has rejected my claim saying that i am a self employed who had not contributed to class 2 nic.
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# 5
MoonDragon
Old 03-02-2013, 3:59 AM
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Quote:
Originally Posted by PlutoinCapricorn View Post
Yes, Class 2 NI contributions and the small earnings exemption apply to sole traders, not limited companies.
I have made a mistake by confusing contractor role as a director of a limited company and a self-employed person.
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# 6
cotswoldaccountant
Old 03-02-2013, 10:40 AM
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Indeed, Class 2 NI (and Class 4 NI on profits above 7,605 per year) only apply to sole traders (also known as self-employed).

If your only income is derived from your limited company, then your national insurance record can be kept up by paying yourself a salary from the company, on which Class 1 Primary NI (Employees') and Class 1 Secondary NI (Employers') may be due, depending upon the size of the salary taken.

Your accountant would not have been negligent in not applying for a small earnings exception certificate as this would not have applied to you, as you were not self employed. Your accountant should of course have advised you of how you could keep up your NI record by paying a salary from the company - there are tax efficient ways of doing this which any reputable accountant would certainly advise you of.
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# 7
MoonDragon
Old 03-02-2013, 3:04 PM
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Quote:
Originally Posted by cotswoldaccountant View Post
If your only income is derived from your limited company, then your national insurance record can be kept up by paying yourself a salary from the company, on which Class 1 Primary NI (Employees') and Class 1 Secondary NI (Employers') may be due, depending upon the size of the salary taken.
I am the only employee (and director) of the limited company.
My salaries per year were less than 6000 and at the link http://www.hmrc.gov.uk/ni/intro/basics.htm one could read :

Quote:
If you're employed

If you're employed you pay Class 1 National Insurance contributions. The rates are:
  • if you earn more than 146 a week and up to 817 a week, you pay 12 per cent of the amount you earn between 146 and 817
  • if you earn more than 817 a week, you also pay 2 per cent of all your earnings over 817
You pay a lower rate if you're a member of your employer's contracted-out pension scheme.
Your contributions are deducted from your wages by your employer.
But I do not see anything regarding Small Earning Certificate in this case (Class 1 National Insurance contributions) where one earn less than 6000 per year and also less than 146 per year.

Quote:
Originally Posted by cotswoldaccountant View Post
Your accountant should of course have advised you of how you could keep up your NI record by paying a salary from the company - there are tax efficient ways of doing this which any reputable accountant would certainly advise you of.
I have been advised few months ago about having a salary below something like 5595 (not sure about the exact amount) and to receive the rest as dividend.

My present problem is that due to my sickness since few months I need to apply on Employment Support Allowance (Income Based) and DWP require an explanation of the reason that I have not contributed to the National Insurance.

Last edited by MoonDragon; 03-02-2013 at 3:08 PM.
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# 8
cotswoldaccountant
Old 03-02-2013, 8:45 PM
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The Small Earnings Exception Certificate only applies to self-employed individuals who would otherwise pay Class 2 National Insurance, and not to an employee drawing a salary from a company (which is what you are doing).

State benefits begin to accrue once earnings exceed the Lower Earnings Limit in a tax year, which for 2012-13 is 5,564. However no national insurance contributions are actually payable until the Secondary Threshold is reached, which for 2012-13 is earnings of 7,488 (this value is the optimum salary for a director to take in the 2012-13 tax year, topped up by dividends, and your accountant should have advised you of this). So as long as you have taken a salary of at least 5,564 in the 2012-13 tax year, then you will not have a gap in your NI record for this particular tax year. You still have time to pay yourself further salary in 2012-13 if your earnings are below 5,564 - this needs to be done before 5 April 2013.

However, if your earnings in previous tax years were below the Lower Earnings Limit for those years, then you may indeed have a gap in your NI record. You should discuss with the tax office exactly which tax years are showing as not having a full year of NI contributions.
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# 9
MoonDragon
Old 04-02-2013, 6:41 AM
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Quote:
Originally Posted by cotswoldaccountant View Post
However, if your earnings in previous tax years were below the Lower Earnings Limit for those years, then you may indeed have a gap in your NI record. You should discuss with the tax office exactly which tax years are showing as not having a full year of NI contributions.
For 2011-2012, I had just received dividend due to a breach of negociation/contract with a client abroad.
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# 10
cotswoldaccountant
Old 04-02-2013, 11:41 AM
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Quote:
Originally Posted by MoonDragon View Post
For 2011-2012, I had just received dividend due to a breach of negociation/contract with a client abroad.
If you only paid a dividend in 2011-12 then you would indeed not have made any NI payments in that tax year, as NI is solely based on your level of salary. Your accountant seems to have not provided you with particularly appropriate advice, as, if you do not have other earnings elsewhere, it is usually best to pay yourself a salary from your limited company of at least the Lower Earnings Limit, before making dividend payments.

If you are the sole director of the company, it is your choice as to how you take an income from the company, and this is not affected by whether you are working for a client abroad or a client in the UK, if all of the income is going through the limited company.
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# 11
MoonDragon
Old 04-02-2013, 6:00 PM
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Quote:
Originally Posted by cotswoldaccountant View Post
If you are the sole director of the company, it is your choice as to how you take an income from the company, and this is not affected by whether you are working for a client abroad or a client in the UK, if all of the income is going through the limited company.
What would be the case if I use another account?
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# 12
cotswoldaccountant
Old 04-02-2013, 7:12 PM
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Quote:
Originally Posted by MoonDragon View Post
What would be the case if I use another account?
I don't quite follow. Is this income from self employment, or income from the limited company?

If you have paid income for work performed through the limited company into a personal account rather than the company's own account, then this constitutes a director's loan from the company to you.

If this income is nothing to do with the limited company, and is paid to you personally for work you have performed as either a sole trader or an employee, then you would need to register as a sole trader with HMRC (and the relevant NI contributions would then be due) or otherwise if you are an employee, then the relevant tax or NI would have been deducted at source by the employer.

You will need to give some very clear information as to how the income has arisen for anyone to be able to help you. I feel that you would benefit from seeking professional advice - if not from your current accountant then you should appoint a new accountant.
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# 13
MoonDragon
Old 06-02-2013, 5:04 PM
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Quote:
Originally Posted by cotswoldaccountant View Post
If you have paid income for work performed through the limited company into a personal account rather than the company's own account, then this constitutes a director's loan from the company to you.
That was my main interrogation.

Quote:
Originally Posted by cotswoldaccountant View Post
otherwise if you are an employee, then the relevant tax or NI would have been deducted at source by the employer.
What would be the case if I have been employed abroad ? Do I have to pay in both the oversea country and UK? I had a litigation with a client who wrongly make me signed two contracts : a contractor one (in name of my company) and few months later an employee one (but I am even not sure that the term of this contract was legal (the contract end if their own client (for who i was providing my services) contract end))(misleading by claiming that was just an update of the job description of the first contract). During three months, they were paying as my employer instead of a clients but refused to pay for the second contract (at the end I have cancelled the contract by just resigning).

What should I do regarding the HMRC? How many expenses can I take off from this income?

In all cases, it sounds like I will have further money to pay.

Quote:
Originally Posted by cotswoldaccountant View Post
You will need to give some very clear information as to how the income has arisen for anyone to be able to help you. I feel that you would benefit from seeking professional advice - if not from your current accountant then you should appoint a new accountant.
Definitively, I will need to change my accountant (we have already cancelled our contract).

The company account has been amended already for 2011 - 2012, can I make a second amendment?

Last edited by MoonDragon; 07-02-2013 at 5:50 PM.
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