How to calculate my Income Tax and National Isurance

Kellez

Hello everyone,

My main question is, how do i calculate my income tax and national insurance. please see the example below and guide me.

Income
Annual Income: £20,000.00
Personal Allowance: £11,000.00
Taxable Income: £9,000.00

Class 2 National Insurance
Class 2 NI per week: £2.80
Class 2 NI per month: £11.20
Class 2 NI year: £134.40

Class 4 National Insurance
9% on profits between £8,060 and £43,000

So how to i calculate my class 4 national insurance to be paid?

is it 9% on the £20,000 or
is it 9% on the £11,000?

Income tax
20% on profits between £11,000 to £43,000

So do i apply this after i deduct the national insurance payments?


My main question is, in which order do we deduct from our income?

[Deleted User]

https://www.gov.uk/self-employed-national-insurance-rates

Class 4 NIC would be 9% of (20000-8060)

This would be calculated separately to your income tax.

Class 4 would be 1074.60

Income tax would be 1800

Class 2 is 134.40

HappyMJ

How to calculate Class 4 NI.

£20,000 (profit) minus £8,060 then multiply by the Class 4 rate. 9%.

Tax is paid on profit of £20,000 minus your personal allowance then multiply by the basic rate of tax of 20%.

It doesn't matter what order you do it in as you get the same figure. Income tax and Class 4 National Insurance are calculated on profits. They aren't expenses like mileage or hotel expenses are which reduce your taxable profit.

If your profit exceeds £43,000 it's a bit more complex. You figure it out on £43,000 then figure out the part in excess of £43,000.

Kellez

Thank you for you replies this is clear now.

this is my final calculations

Annual Income: £20,000.00
Class 2 NI year: £134.40
Class 4 NI: £1,074.60
Income Tax £1,800.00
Income after Tax & NI £16,991.00

thats a lot, they are robbing us

grey_gym_sock

Kellez wrote: »

Class 2 National Insurance
Class 2 NI per week: £2.80
Class 2 NI per month: £11.20
Class 2 NI year: £134.40

so you have 4 weeks in a month, 12 months in a year, therefore 48 weeks in year ... which is not right, is it?

£2.80 x 52 weeks = £145.60

(and the occasional year has 53 weeks instead, but not this one, i think.)

HappyMJ

Kellez wrote: »

Thank you for you replies this is clear now.

this is my final calculations

Annual Income: £20,000.00
Class 2 NI year: £134.40
Class 4 NI: £1,074.60
Income Tax £1,800.00
Income after Tax & NI £16,991.00

thats a lot, they are robbing us

Reduce your profit and you won't pay as much in tax. You can structure your affairs so you don't pay any income tax or National Insurance....legally.

You could set up a limited company and pay yourself a salary of £8,060 per year which will be enough to credit you with National Insurance and you don't pay anything for it.

The remainder of your profit (£11,940) will be taxed at corporate tax rates of 20% (£2,388) and paid out to you as a dividend if you wish. The first £5,000 of dividends each year are tax free. The remainder would be taxed at just 7.5%. If you paid all the profit to yourself as a dividend then the income tax due would be just £121 per year.

You would take home £8,060 in salary plus £9,552 in dividends and pay out £121 in tax leaving you with £17,491. An extra £500 per year just for working through a limited company structure.

MDMD

HappyMJ wrote: »

Reduce your profit and you won't pay as much in tax. You can structure your affairs so you don't pay any income tax or National Insurance....legally.

You could set up a limited company and pay yourself a salary of £8,060 per year which will be enough to credit you with National Insurance and you don't pay anything for it.

The remainder of your profit (£11,940) will be taxed at corporate tax rates of 20% (£2,388) and paid out to you as a dividend if you wish. The first £5,000 of dividends each year are tax free. The remainder would be taxed at just 7.5%. If you paid all the profit to yourself as a dividend then the income tax due would be just £121 per year.

You would take home £8,060 in salary plus £9,552 in dividends and pay out £121 in tax leaving you with £17,491. An extra £500 per year just for working through a limited company structure.

Although bear in mind you will need to file a corporation tax return and accounts. You can use their online software but may have other costs that come with this (set up costs etc)

https://www.gov.uk/guidance/corporation-tax-use-hmrcs-free-filing-software

redpete

HappyMJ wrote: »

Reduce your profit and you won't pay as much in tax. You can structure your affairs so you don't pay any income tax or National Insurance....legally.

...

You would take home £8,060 in salary plus £9,552 in dividends and pay out £121 in tax leaving you with £17,491. An extra £500 per year just for working through a limited company structure.

Then you'd be robbing us.

Bluebirdman_of_Alcathays

redpete wrote: »

Then you'd be robbing us.

How so? What Happy has suggested is fully compliant?

grey_gym_sock

i took "they are robbing us" as a throw-away remark ... perhaps some posters are taking it too seriously.

redpete

Bluebirdman_of_Alcathays wrote: »

How so? What Happy has suggested is fully compliant?

It's was a half serious response to the comment that fully compliant rates of tax are 'robbing us'.

Personally I think the suggested arrangements are no different to other equally compliant tax avoidance schemes that are so roundly criticised.