Class 4 Tax, Another dept for the hard working

SW9888

I have just had a meeting with my accountant, where i got onto the subject of state pensions. Im self employed and pay CLASS 4 national insurance, this is at 8% of my profit so slightly lower than the 11% paid by employees. From her information i learn that my 8% will never be added to any state pension it is just put in the pocket of the government, this is because im self employed!!!! So if i work for someone i pay 3% more and get a state pension, where as if i work hard with the extra duties of being self-employed i pay less but get nothing for it!!!! I would rather pay the 11% and have this added to my state pension, which im told i can not do as im self-employed.

Why is this still running like this, i suppose i should ask if this information is correct as well?

The government wants more workers like me but take an extra 8% for my troubles, which in todays market and world is criminal. Whats the point in being self-employed i end up working more and paying more tax.

Please if this is wrong someone put my mind at rest, if this is correct why is there not someone in the government or news backing the self-employed?

SW

EdInvestor

You also should be paying class 2 contributions (very cheap) which do go towards the basic state pension.

Self employed people are not however eligible for the state second pension (S2P/Serps).

dunstonh

As Ed says, its only the second state pension you dont qualify for. Not the basic. The Govt has taken the view for a long time that if you are self employed, you prefer to pay less in tax to make your own provision.

SW9888

Thanks for the answers there,

I pay the smaller class 2 for what its worth as its so little, just want to know why we pay Class 4 as self-employees and get nothing for it. I do have other saving schemes but paying 8% for no reason seems strange or a stealth tax.

Regards

SW

MrChips

Personally, I can't see much difference between your situation and that of an employee. If I contract out of S2P, I still pay 9.4% National Insurance (11% less a 1.6% rebate in lieu of S2P) with no right to the State 2nd Pension, only the basic pension.

The 9.4% (or 8% in your case) covers all sorts of other benefits provided by National Insurance including other social security in case you ever need it. Like other forms of insurance, you pay the premium every year but you don't usually need to make a claim

Andy_L

MrChips wrote: »

Personally, I can't see much difference between your situation and that of an employee.

If you're an employee isn't you employer paying another ~12% worth of employers contributions as well?

MrChips

Yes, employers pay 12.8% less contracted out rebates if applicable.