I AM Self Employed, I AM SELF’E.
At SEplus we are always looking to the future at all the sorts of stuff like the rules and legislation that may not only effect your business but the way you run it and the many elements that in being Self Employed your accountable for.
Remember I AM Self Employed so I AM accountable.
This New Year, 2017, and there are rumbles in the jungle which may well effect all Self Employed in the coming months.
Starting with two ‘F’ words to most Selfe’s, ‘’TAX’’ and ‘’National Insurance’’.
Yeah, we know, you’d rather be doing something more interesting, but if you value your business, and it is your business, love it, and it will love you back.
SELF’e and TAX
HMRC has introduced a Self Employed ‘’Budget Plan’’ so that voluntary contributions can be made upon a weekly or monthly basis by direct debit.
Any Tax payments owing on a due deadline still have to be paid in full, so if the Tax due was say 2000.00 and 1500.00 had been paid in via the HMRC Self Employed Budget Plan then the 500.00 balance also has to be paid by the same deadline date
This is similar to a ‘Christmas Club’ where by paying in a regular amount the collective payments amass and reduce having to pay a much larger amount by a known future date.
Managing money in times of austerity and ever increasing costs is not easy and the temptation exists in difficult times to ‘’rob Peter to pay Paula’’
So there is merit in paying into a scheme that is unable to be ‘’borrowed’ from, while at the same time amassing to be able to contribute to a larger future payment.
However this scheme provides no ‘reward’ for those Selfe’s contributing, and while it assists in reducing a future liability it also deprives any future use of that money once paid into the scheme.
Your Business, your money, make your money work for you.
There are ways to save and budget towards a Tax Bill on a regular basis that can be set up like a Savings Account or Building Society Account, but with a 30 day notice of withdrawal.
The 30 day notice period prevents acts of instant withdrawals similar to ‘Robbing Peter to pay Paula’ and provides a ‘cooling down’ period, allowing time to think and consider all the options.
Monies on deposit in this way provide a rate of interest, although currently small, but helps keep your money under your control, and you able to budget and plan its use for future requirements.
Alternatively, with low rates of current interest on money deposited a regular monthly Payment into Government Premium Bonds provides another option, whereby its Government secure, offers a good chance of winning something for your money, a reward, has no issues for Access when you need the money back for say paying items your budgeting for, like your Tax bill.
Your money in a Government scheme with chance of a reward, and you still have control of it.
SEplus continually harvest information that all you Selfe’s may or may not be aware of in being ‘I AM self Employed’ your busy running a business, and your time is money so needs to applied effectively, just like your cash, so while your busy earning SEplus will harvest information for you so that you are not only aware but can make informed decisions about what is best for you.
Next ‘F’ word is, yes, National Insurance.
Stay with it, ‘’I AM Self Employed’’ so its important !!
SELF’e and NATIONAL INSURANCE CONTRIBUTIONS
At preset ALL Self Employed are liable for National Insurance contributions which for the Tax Year 2016 to 2017 [the current Tax year] is currently 2.80p Class II contribution for every week if your Self Employed profits for the Tax year 2016 – 2017 exceed 5.965.00.
Remember these National Insurance Contribution [NIC] thresholds are on your ‘’Profits’’ not your Annual Self Employed turnover.
So if your Annual Turnover for 2016 – 2017 is say 19,500.00 and the net profit on your turnover after all your business costs and allowances and expenses have been deducted is say 6,500.00 then you will be paying 2.80 for 52 weeks making 145.60 for the Class II NI contributions and as your Net Annual Profit was 6,500.00 and in being under the 8,060.00 Class 4 threshold, no more NIC to pay.
Had your profits for 2016-2017 not been 6,500.00 but were say 9,500.00 on the same Annual Turnover, then you would be paying 2.80 per week Class II making 145.60 and a further 9% of the 9,500.00 Annual profit as your Class 4 NI contribution.
Remember this is NOT your Tax Payment, this is National Insurance contributions [NIC] only.
SO for Tax Year 2016 –2017
If your Annual Profits are less than 5,965.00 you make no National Insurance Contributions, pay nothing.
[You DO have the option to Pay Class II voluntary as making no contributions can effect your State entitlements and Pension]
If your Profits are 5,966.00 but under 8,060.00 then you will pay just 2.80 per week as Class II contributions making total NI contributions for 2016 – 2017 of 145.60.
If your Profits are over 8,060.00 then you will pay 2.80 per week making 145.60 Class II, NI, and then Class 4 at 9% on any amount over 8,060 up to 43,000.00, for the 2016 –2017 Tax year.
If your Profits are over 43,000.00 then you have to pay 2.80 per week making 145.60 Class II, NI, and then Class 4 NI at the 9% on any amount up to 43,000.00 and then Class 4 NI at 2% on any amounts from 43,000.00 upwards for 2016 –2017 Tax year.
If you’re a Married Women or a Widow who is entitled to pay ‘’Reduced Rate NI Contributions’’ then you do not need to pay Class II National Insurance.
There are some ‘’Special Groupings’’ who are not required to pay NI contributions via their Self Assessment but may want to pay Voluntary NI Contributions so as to maximise their State Pension.
These are as follows- [correct as of September 2016]—–
examiners, moderators, invigilators and people who set exam questions
people who run businesses involving land or property
ministers of religion who don’t receive a salary or stipend
people who make investments for themselves or others – but not as a business and without getting a fee or commission
The reason for bringing up the National Insurance ‘F’ word is that the Government is going to make and introduce NI changes come 2018, whereby Class II is going to be abolished and Class 4 will be changed to include new thresholds and amounts, and while that may seem a long way off, its not.
Abolition of Class 2 NI
Originally announced at Budget 2016, the 2016 Autumn Statement confirmed that Class 2 National Insurance Contributions (NICs) will be abolished from April 2018, hopefully achieving the desired effect of simplifying National Insurance for the self-employed and making the system fairer for employed and self-employed individuals.
At the same time as the abolition of Class 2 NICs, the system for Class 4 NICs will also be reformed to include a new threshold – to be called the ‘small profits limit’ (SPL). The amount of the SPL for 2018/19 is yet to be confirmed but is likely to be around £6,025.
Payment of Class 2 NICs by the self-employed – a standard weekly contribution of £2.80 per week in 2016/17, rising to £2.85 per week from April 2017 – gives eligible individuals access to certain contributory benefits such as contribution-based employment and support allowance, basic state pension and bereavement benefits.
Class 4 NICs are paid by the self-employed on profits above the annual ‘lower profits limit’ (LPL). For 2016/17 contributions are payable at the rate of 9% on profits between £8,060 (the LPL) and £43,000 (the ‘upper profits limit (UPL)). Contributions are then paid at the rate of 2% on profits above the UPL. For 2017/18 the LPL will be £8,164 and the UPL will be £45,000.
After abolition of Class 2 NICs from April 2018, those with profits between the SPL and the LPL will not be liable to pay Class 4 contributions but will be treated as if they have paid Class 4 contributions for the purposes of gaining access to certain contributory benefits. Those with profits at or above the Class 4 LPL will gain access to the new state pension, contributory employment and support allowance (ESA) and bereavement benefit. Those with profits above the LPL will continue to pay Class 4 contributions.
The special arrangements that currently apply to share fishermen and volunteer development workers that allow them to pay special rates of Class 2 NICs to gain access to a wider range of benefits than currently available through Class 2 will also be abolished from April 2018. Transitional provisions will apply.
Class 3 contributions, which can be paid voluntarily to protect entitlement to the state pension and bereavement benefit, will be expanded from April 2018, to give access to the standard rate of Maternity Allowance (MA) and contributory ESA for the self-employed. Rates of Class 3 NICs are £14.10 per week for 2016/17 rising to £14.25 in 2017/18.
Concerns over these changes have been expressed within the tax profession. Anthony Thomas, Chairman of the Low Incomes Tax Reform Group (LITRG) said that some parts of these proposals are good news for self-employed workers on low earnings, but by no means all. Those with profits between the Class 2 exemption limit (currently £5,965) and the Class 4 LPL (currently £8,060) will be better off because they will pay no NI but be credited with contributions. The Group’s concern is for those with lower earnings than £5,965 who would have to pay voluntary Class 3 contributions in the future to protect their benefits entitlement if they did not obtain NI credits through receipt of other benefits, for example tax credits, child benefit or Universal Credit. Class 3 contributions will cost almost five times the amount they are paying now (£14.10 per week compared to £2.85 per week) and may mean the cost is unaffordable, leading them to rely more on means-tested benefits in the future.
And these changes are being mooted as a means to simplify the Self Employed National Insurance Contributions, NIC, so SEplus advice is to ensure that all your National Insurance contributions and payments are up to date and current, as the Rules will change for the 2018 Tax Year and it could become costly is trying to sort out and resolve outstanding issues or matters concerning your NI Self Employed contributions.
Remember ‘’I AM Self Employed’’ no magic wand, my business, my future.