Paying national insurance on 2nd income

tonylds

I work full-time for an employer and so pay my taxes and NI via PAYE. In addition to this income I also do some work for other companies when my services are required (i.e this second income is not regular or predictable).

I intend to pay my tax on this income separately from my first so taht my PAYE code is unaffected. I fully undersatnd my tax liabiliteis but am unsure about my obligations with regards to national insurance contributions. I obviously pay everything I owe with regards my first income directly from my salary but am unsure as to what (if anything) I will need to pay on my second income.

If it is relevant to my question - my second income so far this year (before expenses are deducted) is approx £20k.

I did some similar work early in 2005 (befoer April) and wrote to the tax office explaining this. They then sent me a tax bill but did not state I had any further liabilities with regards national insurance.
Also, I haev read on some web-sites that if earinng a second income one must delare oneself self-emplyed with the tax office. However do my circumstances mean that I have to officially declare that I am also self-employed. I ask this because the tax office did not advise this despite my explaining that I will be continuing this work into the current tax year.

Any help would be really apprecited

4nick8

Hi

http://www.hmrc.gov.uk/employment-status/index.htm

Please first read the guideance on the HMRC website through the above link . Having done that you can decide whether you are an employee,in which case the employer would be responsible for deducting NI,or you are correctly self-employed.

tonylds

Thanks for the reply Nick

I am an employee with regards my first income but am "technically" self-employed with regards to my 2nd income. However my 2nd income is irregular and unpredicatable so would I be stilll have to pay NI on these earnings. I have not registerd as self-employed with the tax office - I simply wrote them a letter last year explainng my position and they replied stating the amount of tax I owed.

As I may not be doing any work on my own buisness for long periods at a time I am confused as to what my obligations (if any) would be with regrads national insurance contributions. Would the contributions I have made from my salary from my full-time job mean that I have no further liabality for national insurance.

I've browsed the inland revenues websites but cannot find anything thta answers my questions.

4nick8

Hi Tony,

As it would seem you are self-employed you will be liable to Class 4 contributions on the profit made. This should appear on the statement of account sent to you by the IR,assuming you have made a profit over the threshold. Did you receive a statement? Do you receive a Tax Return annually?

Check out this link:http://www.hmrc.gov.uk/startingup/class4ni.htm

One thing that concerns me if the fact that you have not registered as self-employed. I assume you just sent them a letter stating your profit.

In the above link you will see that the IR offers help from the business support team who will visit you at home if required. Get the answers straight from the horses mouth.

Hope this is of some help.

tonylds

Hi Nick

When I wrote to the IR last year explaining that I sometimes do other work they simply calculated the tax owed and informed me of this by letter. My extra income in that period was less than £4000 - could that be why they didn't send me a "statement of account"

You say it seems I am self-employed from the info I have given but I am not actively promoting a buisness (and am not registered as a buisness) - I just earn extra money when my services are requested - I may therfore do very little, or no, extra work at all within any tax year so does this make any differnce to my obligations?

Also, if I did have to pay class 4 contributions do you have idea of how this would be calculated. You said these are calculated on any profits above "the threshold". The work I do doesn't reqiuire me to pay out very much yet can earn me a substantial amount (e.g as stated in my earlier posts)
Does "profits" in this context mean literally the diference between the income and the amounts paid out or can it take account of the substantial amounts of time I have put into this work. As I am not registered as a buisness (something I'm thinking about for next year) I cannot pay myself an income for my time (or can I ??) so does this mean that the time I have put in will not reduce the "profits" I have made.

Hope I've made myself clear.

As I first did this work in Feb this year and declared it some time in April/May I have not received a tax return although I suspect I may receive one this year.

I did not register as "self-employed" because I do not run a buisness as such - as I've said previously when I am asked to provide my services I do so, so I just thought it was sufficient to pay income tax on my extra earnings. Also, as I have declared my earnings last year to the IR I would have thought they would have informed me that I needed to register as self-employed if that was neccesssary.

I hope you can answer any of my questions and I thank you for this. I have read the link you gave me and will be contacting this department later in the week but would appreciate it if you can answer any more of the questions I have posed above]

Cheers]

Tony

Cook_County

Tony

Whether or not you like it you are self-employed.

Therefore you ought to have registered to pay Class 2 NIC (or claim deferment) within 3 months of starting.

You are now late so prima facie would be liable for an automatic £100 fine. You may however have an excuse to ask for this to be cancelled because when you notified HMRC of your self-employment they failed to tell you to register to pay Class 2 NIC.

I would suggest that you register now, asking for deferment or small earnings exception (whichever is appropriate) and then appeal against the penalty that will folllow.

tonylds

Thanks for the reply

You mention Class 2 contributions but I believe these are to paid weekly so does this mean I have to be specific about the time periods I am actually working so that I pay these only for the time I am working to earn my second income.

Another thought I've just had is that the specifics of my work may be relevant in this discussion. Basically I hire out items to 3rd parties and then they pay me for loaning these items on a weekly basis. The majority of my extra income therfore is not technically paying for "work done" but for the loan of the items I am hiring. Does this make a difference ?

Also please note I pay national insurance contributions on my full-time employment so does this go any way to reducing my obligations with my 2nd source of income.

'scuse my ignorance on this - I am going to seek professional help on it but any extra info anyone can give me now would be appreciated.

pchelpman

If your income from these other self-employed sources doesn't amount to much you may be able to take advantage of the "Small Earnings Exception". You MUST apply for this fast, preferably in advance of the tax year starting.

Sorry to give you yet another link but it's the easiest way. Look here (about 1/3 of the way down the page).....

http://www.businesslink.gov.uk/bdotg/action/detail?type=RESOURCES&itemId=1073790854

Hope this helps.

tonylds

Thanks everyone for the reposnes and info (and links)

I've just been browsing aound and found this on taxationweb.com in response to a question fomr someone asking about their obligations (re national insurance) if they work full-time and earn extra income on their own buisness (similar circumstances to mine)

"For National Insurance contribution (NIC) purposes, business partners are potentially liable to pay Class 2 NIC at a flat rate (£2.10 for 2005/06), and Class 4 contributions based on profits (for 2005/06, 8% on profits between £4,895 and £32,760, plus 1% on profits above £31,720). However, as you are presumably paying employees' (Class 1) contributions on your present salary, the Class 4 NIC liability on your business profits will be all or mostly payable at a rate of 1%. "
Can anyone confirming if this is correct, i.e as I am paying full class 1 through my salaried employment I will only have to pay 1% on my profits from my own buisness ??

pchelpman

The prescribed annual maximum normal contribution for an individual is 53 weeks at the standard primary (employee) Class 1 contribution rate between the earnings threshold and the upper earnings limit.

For 2005/06 this works out at £3,124.88.

There is also an additional 1% payable on earnings in excess of the upper earnings limit.

If you think there is a chance you will exceed this limit you can apply for "deferment" of contributions on the surplus employments and/or self employment. The Deferment Group recommends that application should be made before the start of the tax year, but will accept applications up to 14 February during the tax year.

This is the relevant HMRC NI section...

http://www.hmrc.gov.uk/nic/contributor_group/about_contributor.htm

Contact numbers are at the foot of the page. They will be able to point you in the right direction as to what exactly they will want you to do - in paperwork terms - to sort this out. You will need to hand details of your expected annual income from each earning source (employment & self employment).

Post back if you need more input.

Meantime....hope this helps out.