We'd like to remind Forumites to please avoid political debate on the Forum... Read More »
We're aware that some users are experiencing technical issues which the team are working to resolve. See the Community Noticeboard for more info. Thank you for your patience.
📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!
Self emloyment and class 4 NICs
Options

tazziegirl_2
Posts: 32 Forumite
in Cutting tax
Hi
Please can anybody clarify how the class 4 NICs work when you're self employed.
ie: If I earn 20,000 (profit) in a year, do I still get the £7475 personal allowance before tax is paid, then at what point does the 9% for class4 NICs start? According to the HMRC website its at £7225 which is below the allowance?
Would it be:
20000-7475=12525 taxable pay @ 20%
then 12525 @ 9%??
What are class 4s for anyway? They don't appear to give any extra benefits. Do I really have to pay 29% tax?
Many thanks in advance
Please can anybody clarify how the class 4 NICs work when you're self employed.
ie: If I earn 20,000 (profit) in a year, do I still get the £7475 personal allowance before tax is paid, then at what point does the 9% for class4 NICs start? According to the HMRC website its at £7225 which is below the allowance?
Would it be:
20000-7475=12525 taxable pay @ 20%
then 12525 @ 9%??
What are class 4s for anyway? They don't appear to give any extra benefits. Do I really have to pay 29% tax?
Many thanks in advance
0
Comments
-
The thresholds are different for tax and NIC, so use the £7225 in your calculation for NICs not the tax allowance of £7475.
Class 4's don't give any benefits - they're just another tax. It's the class 2's that give you entitlements to state benefits. No, you don't have a choice about paying class 4's. You have to think about class 2 and class 4 combined to give your state benefits as class 2 on their own is a very small amount which would nowhere near cover your potential future benefits. After all, employees pay 12% national insurance, so are effectively paying a total of 32% tax!0 -
Thanks for the quick reply, but I'm still confused:cool:
So does that mean 20000-7475= 12525 taxed @ 20%
then 20000- 7225=12775 taxed @ 9%0 -
tazziegirl wrote: »Thanks for the quick reply, but I'm still confused:cool:
So does that mean 20000-7475= 12525 taxed @ 20%
then 20000- 7225=12775 taxed @ 9%
You can always use the calculator at https://www.selfemploymentcalculator.com if you're not sure what tax and NI you'll have to pay.
Your above calculations are correct!0 -
Ah thats great thankyou:)
What was getting me confused is that the nics start below the personal allowance, so you don't get a full personal allowance if you're self employed.
Thanks for the link as well0 -
tazziegirl wrote: »Hi
Please can anybody clarify how the class 4 NICs work when you're self employed.
ie: If I earn 20,000 (profit) in a year, do I still get the £7475 personal allowance before tax is paid, then at what point does the 9% for class4 NICs start? According to the HMRC website its at £7225 which is below the allowance?
Would it be:
20000-7475=12525 taxable pay @ 20%
then 12525 @ 9%??
Many thanks in advance
"You can fool all of the people most of the time"
When I became self employed, I said something similar to this to the help line:
What are class 4s for anyway? They don't appear to give any extra benefits.[so it is just another tax?]
The help line person replied - "I think you understand the situation perfectly sir".
Do they perhaps cover you in some way for falling off a ladder?0 -
John_Pierpoint wrote: »"You can fool all of the people most of the time"
When I became self employed, I said something similar to this to the help line:
What are class 4s for anyway? They don't appear to give any extra benefits.[so it is just another tax?]
The help line person replied - "I think you understand the situation perfectly sir".
Do they perhaps cover you in some way for falling off a ladder?
It's probably the only way of dealing with NICs for self employed people. It would be better if they just scrapped NICs and had a higher rate of income tax, but I can't see that ever happening.
I always tell people to regard class 2 and 4 as two parts of the same thing - one part being a fixed rate to count towards benefits and the other part being earnings related. I can't see another way of doing it. There's no point in harping on about the 9% class 4 not giving any benefit - let's face it, the 20% basic rate tax gives no benefit either if you think that way. You have to think of it as being a 29% contribution towards state costs.
If you scrapped class 2, there'd be people who never paid anything at all if they had low earnings, i.e. 9% of profits over £7k is nil if the profits are under £7k, meaning no state benefit entitlements. If you scrapped class 4, you'd have to massively increase class 2 to make up the funding shortfall which would mean more like £50 per week instead of £2.50 per week, which would cripple any self employed person earning less than the national average, i.e. under say £26k p.a.
At the end of the day, the NI system is a shambles and is long past its sell by date, but it's what we have and what we have to work with.0
This discussion has been closed.
Confirm your email address to Create Threads and Reply

Categories
- All Categories
- 350.8K Banking & Borrowing
- 253.1K Reduce Debt & Boost Income
- 453.5K Spending & Discounts
- 243.8K Work, Benefits & Business
- 598.7K Mortgages, Homes & Bills
- 176.8K Life & Family
- 257.1K Travel & Transport
- 1.5M Hobbies & Leisure
- 16.1K Discuss & Feedback
- 37.6K Read-Only Boards