Freelance Pension Tax Deductible?

David333

Bookworm105 said:

David333 said:

Thanks again. I hadn't realised that NICs are based on taxable profit, not just profit (in my defence, that first link you sent doesn't include the word 'taxable' anywhere on the page, so I don't think HMRC are 

Look at this example National insurance calculator - Which?
15,000 "profit" into the calculator gives £145.80 NI payable
That is the figure people want to know so everything else is hidden 
Now work it out manually so you understand what is going on....
15,000 "profit" - 12,570 PA = 2,430 taxable profit @ 6% C4 NI = 145.80

I think I'm lost. Are Class 4 NICs paid on profit or taxable profit? Because in this example, the taxable profit is £2430, which is lower than £6,725 a year, and so: 'You do not have to pay anything but you can choose to pay voluntary Class 2 contributions' (from https://www.gov.uk/self-employed-national-insurance-rates)!

Dazed_and_C0nfused

Your profit is £15,000.

The £2,430 is simply the amount of your profit which you end up paying tax on.  Your profit is still £15,000.

David333

Yeah, I get that, but I thought we'd got to a point where we were saying that NICs are based on taxable profit, not profit!

Dazed_and_C0nfused

David333 said:

Yeah, I get that, but I thought we'd got to a point where we were saying that NICs are based on taxable profit, not profit!

NIC's are based on taxable profit.  And your taxable profit is £15,000

David333

But, with the personal allowance, isn't the taxable profit £2,430?

Dazed_and_C0nfused

David333 said:

But, with the personal allowance, isn't the taxable profit £2,430?

No, that (£2,430) is the amount of your taxable income that is going to be taxed.  

David333

But @bookworm105 says 'As the example ends with taxable net profit of £4,000 [in that example; £2,430 in this one] that is BELOW the Class 2 threshold of 6,275 so you would NOT be given an automatic "credit" towards your NI based state "benefits", most importantly your state pension'. It seems that the Class 2 threshold of £6,275 is not based on the £15,000, but the £15,000 minus personal allowance.

(mixing up our examples slightly, but you see my point!)

Dazed_and_C0nfused

This might help you.

https://www.litrg.org.uk/working/self-employment/nic-self-employed

David333

Thank you. I looked at that page yesterday and did find it really helpful.

However, I still struggle with what this means: 'As the example ends with taxable net profit of £4,000 [in that example; £2,430 in this one] that is BELOW the Class 2 threshold of 6,275 so you would NOT be given an automatic "credit" towards your NI based state "benefits", most importantly your state pension'!

sheramber

Class 4 NIC is calculated on your taxable profit of £15,000 but there is a lower limit of £12570 so you only pay it on taxable profit over £12570

https://www.litrg.org.uk/working/self-employment/nic-self-employed#:~:text=Class 4 NIC is based,22 to 2024/25).