Class 1, Class 2 AND Class 4 NI ???

Dragonman

Hello

I have just spent an afternoon on the phone to various arms of HMRC, which has unfortunately left me little wiser than when I started. If someone here could ... er ... wise me up, I would be really grateful.

In my main occupation, I am a full-time employee, paying higher rate tax via PAYE and Class 1 NI.

As a sideline, I also lecture at another institution, on an occasional basis, as an hourly paid freelancer. Here I am paid my hourly rate gross (ie without deduction of income tax). I am registered as self-employed (both for my lecturing and for another non-lecturing sideline) and I am therefore intending to pay income tax on my lecturing income via self-assessment, after deduction of allowable expenses, etc. So far, so good.

The problem which has arisen is that, for some anomalous reason, Class 1 NI is apparently payable on my freelance lecturing income.

This is causing a few headaches:

(1) I have had Class 1 NI deducted at source from my past freelance earnings at 11% (when it should, I believe, have been 1%). However, I have been told that I can defer payment of future class 1 NI (and claim back any past over-payment of class 1), so hopefully this is in hand.

(2) I have also been advised that I shouldnt' be paying class 2 and class 4 NI at all on my freelance earnings (ie on top of class 1). However, when I complete my online self-assessment form, I find that I am being "charged" class 2 and class 4 national insurance because I enter my freelance lecturing profits as one of my sources of self-employed income. So is the advice right, and if so does anyone have any practical advice about how to deal with this? While everyone I speak to at HMRC tries to be helpful, the only concrete advice I get is to "write in", as no one seems to be able to give me clear advice on this point!

Many thanks

PlutoinCapricorn

It is absolutely true that Class 1 NI contributions are deducted at source when you pay income tax under PAYE for your main job.

If you are registered self-employed, you are also liable to pay Class 2 each week unless you get an exemption on the grounds of low earnings. In addition, if your profit from self-employment is over a certain amount, you will need to pay a Class 4 levy of 8%.

I can't understand why Class I NI should have been deducted at source on your freelance earnings. Are you sure about this? It should be all or nothing: if you invoice them for the gross amount, they should pay it in full leaving you to look after tax and insurance. Who has said that class 1 is payable on freelance earnings?

Dragonman

Thanks, PlutoinCapricorn.

I agree entirely with the logical argument that it should be "all or nothing" in respect of Class 1 NI on freelance earnings. The institution's authority for deducting Class 1 NI from freelancers is the Social Security (Categorisation of Earners) Regulations 1978, which apparently requires them to deduct Class 1 NI at source while otherwise treating them as self-employed persons for all other purposes.

Dragonman

PlutoinCapricorn

This is the first that I have heard of it. I googled it to see what it means. It could be some rule that only academic institutions apply: Brookes at Oxford mention it, but they say that PAYE will be applied too.

I would not stand for this: either one is an employee or one is self-employed. If they are treating you as half an employee, this can't be right. What about paid holidays?

I hope that you will get some replies from more knowledgeable people: I am completely self-employed and will not accept work on any other basis.
Some people do have 2nd jobs on PAYE, they have a tax code of BR usually and both tax and NI are deducted. They can even be self-employed on top of that and do work here and there without any deductions.

fengirl_2

You need to apply to defer your class 2 and class 4 contributions, assuming you are payng the maximum under class 1 through your main job. Class 1 comes above all others. If you qualify, here is the link to the HMRC website giving details:
http://www.hmrc.gov.uk/nic/deferment.htm

Dragonman

Thanks, Fengirl

Yes, I was over the threshold for 11% class 1 NI in my main job, but they have been deducting 11% also from my freelance income. So it looks like I can reclaim most of this latter 11% last year (as it should only have been 1%) and in future defer paying class 1 until the end of the tax year.

However, on a quick squint through the HMRC guidance you referred me to, I'm not sure I have to defer paying class 4 NI though?! Isn't the point that if I do have to pay class 1 NI under the Social Security (Categorisation of Earners) Regulations 1978, then I dont also pay class 4 at all (ie these earnings should be removed from the profit figure for any class 4 liability on my tax return).