NI for self-employed - confused about this?

[Deleted User]

How does this work? Is it a set amount per month or a percentage as you would normally pay as a salaries employee?

We both work in other jobs and pay NI. Trouble is our new business is possibly not even going to make a profit in the first year.

Can someone explain how the NI works?

[Deleted User]

Do you have to pay a set amount of class 2 NIC anyway? (unless your profits are going to be less than £5K). Is that right?

So, is it better for just one of us to register as a sole trader so that only one lot of class 2 NICs will be paid? For instance, will we each pay class 2 NICs if we register as a partnership?

fengirl_2

All self employed people pay class 2 NIC at £2.40 pw unless their income is below the threshold of £5435 this year. If only one person in a partnership registers as self employed, then the other person would be liable for interest and penalties for failing to register.

[Deleted User]

Hmm. My wife actually does the work involved - I just do the admin/advertising stuff. Can she still register as a sole trader?

FatAndy

It's £2.40 p/w usually paid by a monthly direct debit. However if your profits exceed £5,715 then it's 8% of whatever your profits are. This is obviously paid in arrears as you won't know in advance what your profits will be.

If you expect your profits to be less than £5,075 you can claim exemption.

More info here - http://www.hmrc.gov.uk/ni/intro/basics.htm


I hate to say this but it might be worthwhile getting advice from an accountant. A lot of them will offer a free initial consultation.

[Deleted User]

But is it 2x £2.40 pw if I register us as a partnership?

Also, what are the legal requirements for sole trader or partnership?

FatAndy

If your profits are high enough you will both have to pay the £2.40 p/w. You each have to complete a form CWF1 (see here for more details - http://www.businesslink.gov.uk/bdotg/action/layer?topicId=1073875654&r.l3=1073861140&r.l2=1073859158&r.t=DECISION&r.i=1073792556&r.l1=1073858805&r.s=e) and you'll each have a direct debit set up.

Whether or not to set up as sole trader or partnership really depends on what your other earnings are and how you can maximise the benefit of your annual allowances so again I'd advise finding an accountant who offers a free initial consultation. There's no easy answer. Personally I'd be more concerned with the amount of tax you'd be liable for, especially if you're already in employment.

There is another option which is to set a Limited Company which is a lot easier and cheaper than you might imagine. It's a couple of years now since I worked for an accountant but most of our clients were advised to incorporate for tax purposes. I'm not sure if the benefits are still the same, perhaps someone with more up to date knowledge might add to this?

[Deleted User]

OK. Registered as self-employed and got confirmation letter back.

What happens now? Do I need to do anything else?

Should I now fill in the form to say I'm likely to be below the income threshold?

Savvy_Sue

If you think you will be below the threshold, then yes, send the form back now, because I seem to remember that until they've confirmed that that's OK you're supposed to pay the NI. They didn't, when this was relevant to me, do anything like fine you if you didn't, but technically the exemption only starts once they issue the form. Also note it doesn't last indefinitely, so you do need to renew it. Especially as things may have changed, and they may fine you if you don't either renew it or start paying!

PlutoinCapricorn

The class 2 contribution that many self employed people pay increases by around 10p per week each tax year, so £2.40 pw may become £2.50 pw.

Although it is possible to opt out of paying class 2 by claiming exemption on the grounds of small earnings, some people elect to pay it anyway if they are not paying class 1 via PAYE in their main job. This is because these contributions affect your entitlement to benefits and pensions etc.

Self employed people also pay a class 4 levy of 8% on profits over a certain amount, but if you make enough to be liable for this, you will be making enough to be liable for class 2!

[Deleted User]

PlutoinCapricorn wrote: »

The class 2 contribution that many self employed people pay increases by around 10p per week each tax year, so £2.40 pw may become £2.50 pw.

Although it is possible to opt out of paying class 2 by claiming exemption on the grounds of small earnings, some people elect to pay it anyway if they are not paying class 1 via PAYE in their main job. This is because these contributions affect your entitlement to benefits and pensions etc.

Self employed people also pay a class 4 levy of 8% on profits over a certain amount, but if you make enough to be liable for this, you will be making enough to be liable for class 2!

Thing is we both work in other jobs and pay enough class 1 via PAYE. Also, our business is not even in profit yet !!!