Tax Tip

26 Jan 2010

National Insurance Contributions

By Danielle Hillen, FPM Accountants LLP

 

QUESTION

I am currently an employee and also running a self employed business.  I have been operating this way for 4 years now.  I seem to have been paying quite a lot of National Insurance contributions, can you advise what exactly I should be paying?

 

ANSWER

 

When you registered for self employment you were automatically set up to pay class 2 national insurance contributions. These contributions are currently £2.40 a week and can be paid monthly via direct debit or by quarterly bill.

 

However if you believe your self employed income will be less than the small earnings exemption, currently £5,075 you could apply to get an exemption from the Class 2 NIC by completing form CF10. 

 

Self employed people also pay Class 4 National Insurance via their annual tax return at 8% on profits between £5,715 and £43,875.  A further 1% is charged on profits over this amount.  No class 4 National Insurance is payable if your self employment profits are less than £5,715.

 

Because you are also employed, if your salary is over £43,875 in 2009/10 you may be able to reduce the amount of class 4 NIC payable on your self employed profits to 1% instead of 8%.

 

If this applies to you, you can complete Form CA5610 and send to HM Revenue and Customs to claim a refund of the overpaid Class 4 National Insurance for the last 6 years.

 

If you have more than one employment you may be able to defer some Class 1 NIC by completing form CA5627.

 

The advice in this column is specific to the facts surrounding the questions posed.  Neither the Democrat nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.

 

For more details contact:

 

Email:       d.hillen@fpmca.com

---