Simple Question: Self-Employment

Blaize110

Hi,

I am currently a student and i'm thinking of setting up a small business and wanted to check that I had the tax situation right. Please correct me if im wrong:

- Register as self-employed
- Do self-assessment forms
- Get taxed on income above personal allowance
- Pay Class 4 NICs on earnings above £5k ish, (which i'd be below)
- Pay Class 2 NICs whatever.

However seeing as i'm not going to be earning much, I was going to apply for a small earnings exemption from the Class 2 NICs.

And this is where my question lies, by exempting myself from class 2 NICs, am I penalising myself in any way, or am I just not making contributions that I otherwise could make.

Basically, if I don't pay any NICs whilst self-employed, am I any worse off than at the moment when I dont pay any NICs as a student?


It all seems a bit ridiculous that I have to fill out all these forms if im not actually going to be giving the government anything anyway!!!

ajbisgr8

Firstly, what you say is correct, you will have to register for self assessment and class 2 NICs but can apply for small earnings exemption.

By applying for the small earnings exemption you won't be in any worse position than you were not working at all.

However, by not paying Class 2 NI it may affect your state pension and certain other benefits long term. Not so much an issue if you're still fairly young as you've got plenty of years left to qualify for full state pension (you need 30 years of contributions).

Bear in mind though that Class 2 NIC are only £2.50 per week so it's probably one of the cheapest ways to get in qualifying years for the state pension.

It's really up to you if you think it's worth paying or not, weigh up the cost against the likelyhood of achieving 30 years contributions in future.

Blaize110

Thanks, thats helped clear things up

Zorz_2

Take a look also at whether you can get Working Tax Credit. I'm not sure how your student status affects this, you need to work for a minimum number of hours every week. But if you are entitled, I think you can get Class 2 NI credited to you, that's better than getting small earnings exception.

But either way, I have to agree with ajbisgr8, paying Class 2 NIC makes a lot of sense.

harryhound

I failed to pay some "stamps" when I was a "student" - it is a bit of a long story.

The then equivalent of the department of employment/social security in an attempt to get voluntary contributions of this tax out of me had a long think, this was the only suggestion they could make:

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/BenefitsTaxCreditsAndOtherSupport/Expectingorbringingupchildren/DG_10018869

Fortunately even 50 years ago, procreation was a voluntary life style choice.