Class 4 contributions - Confuse me - Help??

larmy16

I work self employed as a cleaning lady and I filed my tax return over the weekend as follows:-

Annual Turnover 11,816.03
Allowable expenses 983.26
Net Income 10,833.77


Personal Allowance 5,035.00
Taxable income 5,826.00


How they worked tax out:-

£2,150.00 @ 10% 215.00
$3,648.00 @ 22% 892.56

Interest from B. SOC. 5.60

Plus class 4 conts
on £5,798 463.84

Income Tax + Class 4 1,481.00

Estimated payment due by 31 January 2008 £1,481.00
(!st payt for 2007-2008) 740.50
TOTAL DUE BY 31 JAN 2008 £2,221.50
(2ND payt on account 2007-08
due 31 July 2008) 740.50

Sorry for poor presentation.

I just do not understand what these class 4 contributions mean? Also I cannot think just how high this amount is on what I consider to be a fairly low income!!!

I am hoping someone can explain the system to me, especially the second payment of £740.50.

I know I am having a gripe here, but as a single householder with £86.00 rent plus around £25.00 Council Tax to pay, not to mention running a car to get to my work, food etc (holidays dont even figure) - I cannot help thinking how one cannot blame someone choosing to stay on benefits when there is so little money to be had at the end of a gruelling week. (dont flame me please - it is just a thought and I do like working!)

It seems to me that I end up with around £190.00 at the end of the week??

So do you think I should be saving £40.00 per week to cover this tax.

Luckily I have over a thousand put aside, but I was not quite prepared for these class 4 costs????

Would really appreciate any explanation from anyone. Fed up but many thanks anyway. Sorry for long post!!!!!!:o

Hoddie_2

Class IV National Insurance contributions (NICs) are payable by all self-employed people, unless you're above state retirement age or have a lot of PAYE income. When you add Class II and Class IV together, it's comparable to what PAYE employed workers pay.

The Payments on Account (POA) are paying in advance of your following tax return. They are both equal to exactly half of your previous year's liability.

So if your 2006/07 liability (tax bill) is 1,481, you need to pay this in January to cover the tax and NIC owed for 06/07, plus half as much again as a payment towards 07/08. A further payment towards 07/08 will be payable in July 2008.

The good news is that in January 2009, you will already have paid 1,481 against your 07/08 liability so the payment you'd need to make then will be much lower.

If you think it would be helpful, contact your tax office and request a Budget Payment Plan. They will offer to set up a Direct Debit to collect the money due in January on a weekly or monthly basis starting immediately. Although they don't pay interest, this would be the best option if you don't think you'll be able to keep the money in the bank (I know I wouldn't be able to).

Hoddie_2

By the way, if you're aged 25 or over and work a minimum of 30 hours per week, you may be eligible for Tax Credits. If you're not already claiming, it might be worth calling them on 0845 300 3900 for an eligibility check.

larmy16

Hoddie wrote: »

By the way, if you're aged 25 or over and work a minimum of 30 hours per week, you may be eligible for Tax Credits. If you're not already claiming, it might be worth calling them on 0845 300 3900 for an eligibility check.

Thanks for that - I checked with entitled.to.com and it seems I am above the amount you need to qualify - in other words a pittance! Grrrr.

Bean_Counter

Just to follow up on Hoddies points, class 4 national insurance is charged for the 2006 / 07 year at 8% on profits between £5,035 and £33,540 per annum.

At the end of the day, it is just another form of tax on profits for the self-employed.