National Insurance payments Class 4

chubsta

Quick (hopefully!!) question.

I am employed and have my National Insurance contributions taken out at source.

Last year i started up a small business as 'self employed' and got an exemption certificate from National Insurance on those earnings because it was less that the £5000 approx limit - all this went through fine, HMRC were happy with everything etc, my SA was filled in and i have already payed my tax bill that will be due this year for 2010 - 2011 SA.

Looking into NI contributions for this year as my earnings are much higher from my self-employed stuff I am aware i have to pay the Class 2 contributions, which will be £130 for the year...

I now realise i have to pay the Class 4 contributions too, on my self-employed 'profits' above £7225.

So, the question is this - when working out my 'profits' under the self employed is this before or after the tax i have to pay on them? The tax rate is 40%...

ie:
total self employed earnings = 20,000
total self employment capital expenses/expenses = 3000
profits to be taxed at 40% = 17,000

Income tax payable = £6800
Actual real profit from self employment = 10,200

Do i pay 9% Class 4 contributions on the difference between my actual profit of 10,200 and the 7225 limit = 267.75

or

Do i pay 9% Class 4 contributions on the total 'profit' before tax of 17000 minus the 7225 limit = 879.75

Any advice greatly received - to be honest I feel i am paying so much tax anyway at 40% that its not going to take much to just decide 'sod it' and shut my self employment down, with another flourishing business going to the wall due to the governments fiscal policy...

jimmo

If you are sure that the whole of your profits from self-employment will be taxable at 40% that means that you have other income of at least £42,475.
If the bulk of that other income is earnings from employment it is very likely that you can defer paying Class 2 and/or Class 4 National Insurance on your self-employed income.
Here are the guidance notes.
http://www.hmrc.gov.uk/working/intro/employed-selfemployed.htm

chubsta

Thanks for the reply but I fault to see why i should 'shut up' - i work damn hard for my money and to see the 40% tax rate reduced so i end up paying even more tax, and then have to pay effectively 50% (40% tax + Class 2 and 4 contributions) on what i earn outside of my 'day job' really annoys me, to the point where i wonder why i bother - unfortunately i can't afford the tax-dodges that the bankers and politicians use to pay tiny amounts of taxes

Perhaps i should just give up both jobs and go on the dole and sit there complaining about bankers etc instead of doing my best to support myself and my family - i don't mind paying my fair share of contributions but 50% overall of my extra earnings is taking the pi$$, especially when so much is wasted or given away by our 'Government'...

chubsta

jimmo wrote: »

If you are sure that the whole of your profits from self-employment will be taxable at 40% that means that you have other income of at least £42,475.
If the bulk of that other income is earnings from employment it is very likely that you can defer paying Class 2 and/or Class 4 National Insurance on your self-employed income.
Here are the guidance notes.
http://www.hmrc.gov.uk/working/intro/employed-selfemployed.htm

Thanks for the reply - i will look into that, although my understanding of the word 'defer' is that it means i would only have to pay it later, i would prefer to just get everything out of the way - hopefully i have misunderstood tho!

AirlieBird

Are you saying that you are a 40% taxpayer as an employee? In which case wouldn't it be the case that you wouldn't have to pay Class 2 NICs and your Class 4 NICs only be 2% as you would have paid the maximum normal contribution from your employment?

jimmo

chubsta wrote: »

... my understanding of the word 'defer' is that it means i would only have to pay it later...

I agree, to defer means to postpone.
However, using Class 4 as an example, if you don’t defer you will have to pay 9% on your profits over £7,225 at the same time as paying your Income Tax (including payments on account if appropriate) and then wait to get any overpayment back “in due course“.
If you defer, you can wait until your correct total liability is determined and then, all things being equal, you will have to pay 2%.
So, very roughly, pay 9% up front and wait to get 7% back, or pay nothing up front and wait to pay 2% later.
Your choice but, personally speaking, I would far sooner owe money to HMRC than have HMRC owing me money.

chubsta

Thanks for the replies - I'm going to give them a ring this week and find out exactly where i stand, tbh, i would rather pay too much and have to claim it back than too little and have to find it at a later date, i like to budget well in advance for stuff so i never have to worry about finding the money at short notice...