Very Small Biz, Tax and paying NI contributions

dennishopper · 28 November 2019 at 12:45PM

Have recently moved back to the UK after a couple of years travelling. I don’t plan to return to employment in the near future, living frugally off savings. I have a small self employed income stream which will earn me about £8k pa approx, as it has done the last few years. I have never paid tax (not sure if I even need to with this amount earned) but would like to do everything right having now in terms of declaring having moved back to the UK, at least for the foreseeable. I would also like to pay NI contributing also, having not paid any in last 4 years since I left my former employment.

I don’t know where to start with declaring this small income, do I need to register a business? Also is it possible to back pay NI contributions and if so should I?

00ec25 · 28 November 2019 at 3:15PM

you have a level of self emplopyment income well above a "hobby" and so, whilst I accept it appears you do not have total income from all sources above the tax threshold, you should nonetheless register as self employed with HMRC and declare your earnings on a tax return

the reason for doing so is you can then choose to voluntarily pay Class 2 NI (£3 per week) which will cost you a lot less than Class 3 (£15 per week) and will still give you the same state pension rights. Note the rates were lower in previous tax years

also bear in mind that depending on your profits you are possibly in excess of the threshold (£6,365) at which it is compulsory to pay Class 2 anyway - hence the need for you to register and declare a tax return.

in respect of your period outside the UK, yes you can play catch up, but only by paying class 3. so check your Ni record and see how many year you still need to reach the full state pension, you may chose not to pay all 4 if you reckon you'll get to the max before you stop working for example, though of course that is gambling on the future.

register
https://www.gov.uk/log-in-file-self-assessment-tax-return/register-if-youre-self-employed

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

https://www.gov.uk/government/publications/rates-and-allowances-national-insurance-contributions

Ni record
https://www.gov.uk/check-national-insurance-record

you may also want to explore the trading allowance if your income rises and you breach the tax threshold
https://www.gov.uk/guidance/tax-free-allowances-on-property-and-trading-income

tacpot12 · 28 November 2019 at 3:44PM

You might have a look at Andy McLelland's Small Business Toolbox channel on YouTube, which will also answer many of your questions: https://www.youtube.com/channel/UCrOgCVepEza4oYuPzidkv6A

dennishopper · 29 November 2019 at 11:20AM

Very helpful, and thanks for the various links. The profit is roughly £8k, I purchase travel and logistics for commissions, quite hard to show the profit actually beyond what I say it is, that being said I definitely want to pay what I should be now that I’m back in the U.K. Re. NI contributions, keen to back pay them to the maximum, although sounds like it will be in the thousands depending on how much they were per week 2/3 years ago if that is that is the historical price that will apply to me?

Also, and I’ll of course now research all of this, but what is the outcome if I did not have enough years of NI contributions by choosing not to voluntarily pay them? I’m far from retirement and I just can’t help but feeling things will have all changed by then again. I’m 36 with perhaps just 6 years of NI contributions thus far.

Many thanks for the direction. I feel like I’m starting from scratch here.

Savvy_Sue · 29 November 2019 at 2:57PM

If you don't have enough years of contributions you'd get a reduced state pension. Relying on a state pension alone would probably be A Very Bad Idea in any case so it may not matter much. You need a plan to supplement it.

But you don't have to pay all the missing years now, or at the same time.

Get a pension forecast, see which years are missing and how many more you need. If you'd benefit from making them up, note the latest by which you have to pay any missing years.

dennishopper · 30 November 2019 at 12:52PM

Does it not make more sense to pay the missing years now, if the contribution rate increases and you can only pay back the last 4 years?

Also, is it too late to submit a self declared return for last years tax year thus paying the reduced Cat 2 contribution vs the “go back” and pay the more expensive Cat 3 contribution, if that makes sense.

Savvy_Sue · 30 November 2019 at 1:32PM

Read the links in 00ec's post to work out whether you NEED to pay the missing years. I didn't pay while I was a student and I have enough years. The no. of years needed has reduced since then.

Can't answer the other question....

dennishopper · 2 December 2019 at 4:45PM

Thanks, I do need to pay the missing years, don’t have many! Wondering how long I can back pay?

Also, I’m too late to self declare for 2018-2019 I think, to be able to pay the lesser Cat 2 contribution. If I want to back pay it’s the Cat 3 rate so £15+ per month :-(

00ec25 · 2 December 2019 at 8:15PM

dennishopper wrote: »

Thanks, I do need to pay the missing years, don’t have many! Wondering how long I can back pay?

Also, I’m too late to self declare for 2018-2019 I think, to be able to pay the lesser Cat 2 contribution. If I want to back pay it’s the Cat 3 rate so £15+ per month :-(

why don't you read the links for yourself then you can see what other links you also need to read

here is a start, it answers back dating https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/743370/CA5603.pdf

You can look up how to amend a submitted tax return yourself. You are far from late for 18/19 since the year does not close for another 2 months

dennishopper · 16 December 2019 at 11:08AM

00ec25 wrote: »

here is a start, it answers back dating....

You can look up how to amend a submitted tax return yourself. You are far from late for 18/19 since the year does not close for another 2 months

Ah great, so I’m not too late to to self declare for 18/19! Will I be able to pay the lesser NI (Cat2) for 18/19 based on that submission? (if that makes sense)

00ec25 · 16 December 2019 at 2:13PM

dennishopper wrote: »

Will I be able to pay the lesser NI (Cat2) for 18/19 based on that submission? (if that makes sense)

either you were self employed for 52 weeks of 18/19 or you weren't

if you were, then select the option to pay class 2 voluntarily on your 18/19 tax return (at pro rata rate if <52 weeks)

Very Small Biz, Tax and paying NI contributions

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