Puzzling Class 4 contributions calculation

pinkflamingo1965

Hi everyone,



I am very puzzled about how they calculate class 4 national insurance contributions. They say it is based on your profits. So say you earn £20,000 in profits. They take off the personal allowance of around £11,000. This leaves £9,000. So they should ask for 9% of £9,000. Is this right? I have looked back over the last few years of tax returns and they have consistently increased the figure from which they work out the 9% figure by around £2,500 (whether I earnt a lower amount, a higher amount etc), so in this example they are working out my class 4 contributions by calculating 9% of £11,500. I can’t for the life of me figure out where they have snatched this figure from. Can anyone advise?!


Any help very gratefully received!

chrisbur

pinkflamingo1965 wrote: »

Hi everyone,



I am very puzzled about how they calculate class 4 national insurance contributions. They say it is based on your profits. So say you earn £20,000 in profits. They take off the personal allowance of around £11,000. This leaves £9,000. So they should ask for 9% of £9,000. Is this right? I have looked back over the last few years of tax returns and they have consistently increased the figure from which they work out the 9% figure by around £2,500 (whether I earnt a lower amount, a higher amount etc), so in this example they are working out my class 4 contributions by calculating 9% of £11,500. I can’t for the life of me figure out where they have snatched this figure from. Can anyone advise?!


Any help very gratefully received!

Not sure where you got the figure of £11000 from. Class 4 is payable on earnings over £8632 details here
https://www.gov.uk/self-employed-national-insurance-rates

Pennywise

pinkflamingo1965 wrote: »

They take off the personal allowance of around £11,000.

No, you're getting mixed up. The £11k is the tax personal allowance and has no bearing to NIC. NIC is based on the NIC threshold which is set at a lower amount of roughly £8.5k p.a. Tax and NIC have different threshold and different rates.

pinkflamingo1965

Hi there, thanks for the feedback. Duly noted. I still can't work out how they reach the figure from which they work out what 9% of it is. So say my profit from self-employment before tax, NI etc is £20,000, why are they saying we are going to take 9% of £13,000? They must be factoring in other things but I just can't see what!


Many thanks in advance.

BoGoF

The lower limit for 2018/19 was £8424 so if you had a taxable profit of £20,000 you would pay Class 4 on £11,576 @ 9%. Instead of 'say 20,000' tell us what your calculation actually shows.