freelancer paying NI

dllive

Hi,
I have a fulltime job, but have also started doing some freelance. Ive been reading up on tax implications. It seems that I will be paying class 2 and class 4 NI at a set amount of about £35pm. Being a part-time freelancer, do I still need to pay the full amount of NI that a fulltime freelancer pays? I already pay NI through my fulltime job.
Apparently Im being fined £100 because I was late registering as self employed ( I only invoiced a few hundred pounds 5 months ago and I thought I could just declare this on a self assessment form - I didnt really know this would class me as being 'self employed'!)
Thanks

fengirl_2

If you are working for yourself, then you are self employed. Class 2 NIC is £2.40pm, payable by DD, but you can get a small earnings exemption if your profit is under £6035 (I think - check on HMRC website). Class 4 NIC is 8% on annual profits over £6035 (again, I think) and is payable with your self assessed tax on 31 Jan 2010.

PlutoinCapricorn

If you have taxable income that HMRC do not know about, you do need to complete a self-assessment return.

You do not necessarily need to register as self-employed: if it is just pocket money or a one-off then completing the return is sufficient.

If you hope to get a decent, regular income or earn more than a certain amount, then registering as a sole trader is required. There is also the case that some clients will only retain you if you are registered. Perhaps you could say that the original income was a one off, but now you are planning to build up this as a business. At one time you got three months to register, this has been reduced to one.

www.businesslink.gov.uk has all kinds of useful information.

dllive

Hi, thanks for your replies.
I phoned HMRC this morning on their support number. The chap I spoke to wasnt very helpful and said he couldnt answer any questions regarding tax (this was the "Newly Self-Employed" support line - 0845 915 4515!).

Fengirl: He did say that when I register as self employed, if its more than 3 months, then it will automatcailly trigger a penalty notice which Ild have to appeal against. He said that class 2 is 2.40pw (not per month). He also said that class 4 is £31.20pm. He said these are flat fees regardless of what I earn (I got him to repeat this as I assumed it would be a percentage of earnings). What he said seems to be different from what youve stated. Im less likely to believe him because he wasnt very communicative - or helpful.

PlutoinCapricorn: The chap said that you have 3 months to regsiter as being self employed and not 1.

Every person Ive spoken to (mostly freelancers in a similar industry to me) have all given different answers to my questions. I thought phoning the HMRC help line would help clarify matters, but its done the opposite. One parttime freelancer I spoke to said she was so fed up with HMRC 'convolutions', that she will only do work if its cash-in-hand. Although I wouldnt do that, I can understand her frustrations!

fengirl_2

I'm not v good on NIC's either - my answer was a bit of a stab in the dark, but if he says £2.40 pw, then I would believe that. However, class 4 is definitely not payable weekly, it is based on profit. There is a small earnings exemption and you need to look on the HMRC website for this.
The 3 mth grace period for registering as self employed has been withdrawn. Now you have to register as soon as possible after you start receiving income.
I'm afraid the people on the helplines have minimal training and no investment in the job, it must be soul destroying work.
At least you are registered now, which means that soon yu will be invited to set up a DD to pay yur class 2, but do apply for exemption if your self employed income is low. Class 4 will work its way in to the tax calculation when you self assess at the end of the year.

tyllwyd

I'm a freelance sole trader, and I pay class 2 NI by direct debit every month, which is either £9.60 or £12, depending on whether it's a long month or not - I don't worry about it, they just take what they feel is appropriate! I pay Class 4 which is calculated on my profits when I submit my self-assessment form, and paid along with my income tax bill in January/July.

Do you think he was talking about Class 3 NI - on the hmrc website it says that is 12.05 per week, which would be £48.20 per 4 weeks (but a few years ago it was £7.80 which would be his £31.20)?

dllive

fengirl: Thanks for your comments. I ready about the small earnings exemption. I pressume that I could claim this, and then if I earn more I could pay the additional NIC. Ill speak to HMRC about this. I understand that its soul destroying work being on these helplines, but surely their soul function is to have a basic understanding of how taxes work (eg: that the 3 months thing has been disbanded and the rate of NIC classes etc...)

tyllwyd: Thanks for the clarification. Talking to freelancers like you has been helpful. He may have been talking about Class 3 (although Im sure he never mentioned Class 3 - only Class 2 and 4 because these are applicable to self employed).

Im going to phone them again tomorrow and hopefully Ill get a better response!

PlutoinCapricorn

Although income tax and NI can be complicated, and the rules and figures can change each year, it is really bad when people on the HMRC helpline don't know the basics.

You got it right the first time: as a registered self employed sole trader, you are potentially liable for Class 2 and Class 4 NI contributions, irrespective of whether or not you have a regular job where you pay Class 1 NI and how many hours you spend on the freelance work. The determining factor is the amount of your profit i.e. net earnings.

Some time after you register, HMRC will send a demand for the amount of Class 2 owing to date, and also a direct debit form for the future. Class 2 is currently £2.40 per week, it was £2.30 for FY 2008/09. You can get an exemption certificate if you expect your profit to be less than £5,075 (£4,825 previously). The Class 4 levy will be calculated when you file the return: it is 8% of any profits between £5,715 (£5,435 last year) and approx. £43k.

So if you are just starting up, you may not be liable for any NI at all for a while, but you will need to claim exemption from paying Class 2: there should be a form arriving in the post along with the other stuff.

Here is a link to the HMRC rules: http://www.hmrc.gov.uk/forms/cf10.pdf

dllive

Thanks PlutoinCapricorn.

PlutoinCapricorn

It is definitely worth investing some time at the start of anything in mastering the basics and doing your own research.

The HMRC website is the best place to get the definitive, official rules. No matter what people may say or believe, this is where to go in case of confusion. Citizens Advice and Help the Aged try to explain Income Tax and NI clearly. Accountancy firms often have the bands and figures on their websites too, and Rawlinson & Hunter have a downloadable "Tax Rate card" that I have found very useful.

Google is a useful tool just to get some background info on e.g. "Class 2 NI" and "Small earnings exemption".

Asking around as you have seen can bring up a lot of mis-information! However, once people know where to get the official rules and how to apply them to their own affairs, and understand the principles, dealing with Income Tax and NI is not too difficult. It is all part of having a show of your own and only working for cash in hand is not the best way to deal with things!