Freelance Pension Tax Deductible?

David333

Thank you, but I still don't understand the £4000 figure

Dazed_and_C0nfused

David333 said:

Thank you, but I still don't understand the £4000 figure

In that example it was the amount above the Class 4 NI threshold.

You could say it is the part of your profit liable to Class 4 NI.

It is not in itself a "profit" amount.

David333

Yes, but the way that the £4000 figure was cited was that it was below the threshold!


Sorry, I'm not trying to argue or being (deliberately) stupid. I just don't get how this is right: 'As the example ends with taxable net profit of £4,000 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'. Note the capitalised BELOW, which you've rephrased as ABOVE!

Dazed_and_C0nfused

David333 said:

Yes, but the way that the £4000 figure was cited was that it was below the threshold!


Sorry, I'm not trying to argue or being (deliberately) stupid. I just don't get how this is right: 'As the example ends with taxable net profit of £4,000 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'. Note the capitalised BELOW, which you've rephrased as ABOVE!

I think the problem here is you have been misled by reference to two "profit" figures.

As far as HMRC are concerned there is only one profit figure.  And in this example it was £15,000.

There may be multiple "profit" figures from an accounting perspective but for tax HMRC are interested in your profit.  Whether you call this profit or taxable profit doesn't change what it is it.  And that is £15,000 in this example.

sheramber

I am sure you agree £4000 is less than £6275.

If you profit chargeable to nic is less than £6275 you do not get class 2 credits. 

Class 2 credits are what count for state pension. So you would need to consider paying voluntary class 2 to avoid having a year which does not qualify to count for your eligibility to state pension when you reach retirement age.

If your profit chargeable to nic is £6275 or more  you  get class 2 credits automatically.

David333

sheramber said:

I am sure you agree £4000 is less than £6275.

If you profit chargeable to nic is less than £6275 you do not get class 2 credits. 

Class 2 credits are what count for state pension. So you would need to consider paying voluntary class 2 to avoid having a year which does not qualify to count for your eligibility to state pension when you reach retirement age.

If your profit chargeable to nic is £6275 or more  you  get class 2 credits automatically.

I swear that what you and @Dazed_and_C0nfused are saying is different!

I think my issue is what the threshold applies to. Is it the amount of my profit (which is turnover minus deductions; we've used the example of £15,000) or the amount on which tax applies (which is the previous figure minus personal allowance, which would be £2,430)?

Dazed_and_C0nfused

David333 said:

sheramber said:

I am sure you agree £4000 is less than £6275.

If you profit chargeable to nic is less than £6275 you do not get class 2 credits. 

Class 2 credits are what count for state pension. So you would need to consider paying voluntary class 2 to avoid having a year which does not qualify to count for your eligibility to state pension when you reach retirement age.

If your profit chargeable to nic is £6275 or more  you  get class 2 credits automatically.

I swear that what you and @Dazed_and_C0nfused are saying is different!

I think my issue is what the threshold applies to. Is it the amount of my profit (which is turnover minus deductions; we've used the example of £15,000) or the amount on which tax applies (which is the previous figure minus personal allowance, which would be £2,430)?

As far as I'm aware blind people don't have different rules for paying NI.  They wouldn't be paying any tax on profit of £15,000 (if it was their only taxable income).

Class 4 NI is calculated by reference to your profit, not the amount of that profit you actually pay tax on.

Bookworm105

Dazed_and_C0nfused said:

David333 said:

sheramber said:

I am sure you agree £4000 is less than £6275.

If you profit chargeable to nic is less than £6275 you do not get class 2 credits. 

Class 2 credits are what count for state pension. So you would need to consider paying voluntary class 2 to avoid having a year which does not qualify to count for your eligibility to state pension when you reach retirement age.

If your profit chargeable to nic is £6275 or more  you  get class 2 credits automatically.

I swear that what you and @Dazed_and_C0nfused are saying is different!

I think my issue is what the threshold applies to. Is it the amount of my profit (which is turnover minus deductions; we've used the example of £15,000) or the amount on which tax applies (which is the previous figure minus personal allowance, which would be £2,430)?

As far as I'm aware blind people don't have different rules for paying NI.  They wouldn't be paying any tax on profit of £15,000 (if it was their only taxable income).

Class 4 NI is calculated by reference to your profit, not the amount of that profit you actually pay tax on.

if your only source of income is SE, then the amount of C4 you pay is calculated on profit above the lower earnings limit (LEL), but LEL is the same value as the personal allowance, and therefore effectively is SE profit - LEL = amount of profit subject to C4

as people are used to the idea of gross pay and taxable pay for employees I was using the same principle to demonstrate amount of "profit" that will be taxed ("taxable" profit). Sadly it appears that just confuses people 

the maths however is the same when it is written out the technically correct way:
amount of SE profit above LEL = amount of profit subject to C4