Class 4 NIC calculation

Daisey

My husband was made redundant in September 2007 and has been self-employed ever since. Because he had overpaid tax through PAYE his Self-assesment tax bill for 2007-08 was very small.

I am in the process of doing his 2008-09 return online, and as this is his first full year of SE I have a question about the Class 4 NIC calculation.

His taxable income after his expenses, personal allowance etc is £10031, but the amount used to calculate how much he owes for Class 4 NIC is £10493.

Why are the 2 figures different, and how do they calculate the amount they base the Class 4 contributions on?

Thanks
Daisey

harryhound

could it be because the threshold for National Insurance Contributions is not the same as the threshold for Income Tax?.
Having two sorts of earning tax, makes plucking the goose easier and minimises the squawking?

http://www.hmrc.gov.uk/rates/nic.htm

http://www.hmrc.gov.uk/rates/it.htm

mrkbrrws

Class 4 is charged on profits over £5,435, so presumably the self-employed profit was £15,928.

£15,928 minus the personal allowance (6,035) would be £9,893, so does he have other income (interest?) of £138 to make up the difference?

Daisey

Thank you harryhound and mrkbrrws.

Yes his interest and dividends do add up to £138 so that's where the difference comes from. Most of our savings are in my name as I am not a tax payer at the moment.

I just wanted to understand how they work it all out and check for myself the calculations are correct.

Am I correct in thinking that as he was 65 this September he no longer pays Class 2, but will have to pay Class 4 on all of his profits for this 2009-10 year, but not any for 2010-11?

Thanks again
Daisey

mrkbrrws

Yes, Class 4 will apply until he is over State Pension age at the start of the tax year.