8: NICs Flashcards
What two types of NICs do self-employed people pay?
Class 2
Class 4
How are Class 2 NICs paid and who pays them?
Sole traders and partners (16 to state pension age)
Flat rate - 3.45 a week
Payment made through the self-assessment system
How does the lower profit limit works for Class 2 NICs?
If you earn over 12,570 (LPL) you have to pay Class 2.
If your pay is between the SPT and LPL then it is ‘treated as paid’ - you dont pay anything.
How are class 4 paid and who pays them?
Sole traders and partners (16 to state pension age)
Based off your tax adjusted trading profits
Payable on account/balancing payment
How are Class 4 NICs worked out, more specifically?
Bands, like income tax!
0%
9%
2%
Must be payment on account
What types of tax is POA required for?
Income Tax
Class 4 NICs
- for the first two payments
CGT
Class 2 NICs
- in addition on the balancing payments
What are the three key dates with POA?
31st Jan 2024 - First, during tax year
31st July 2024 - second
31st Jan 2025 - balancing
How are POA’s calculated and who is exempt?
Calculated based on 50% of the previous year’s tax payable by self assessment
Not required if the amount paid in the previous tax year was less than:
£1,000
Or
<20% of total income tax and class 4 liability
What is included in the balancing payment?
Unpaid income tax
Unpaid self-employed NICs (including Class 2)
Capital gains tax
What are the steps to doing the POA?
- Figure out what the total income tax payable and class 4 NICs are for the year before. Pay the first two amounts of POA.
- For your balancing payment:
- find the total tax that you owe
- deduct what’s been paid
- pay the rest - On the same date, do your first POA for next year
How do late payments work with POA?
For the first two POA: no penalties apply.
For the balancing payment: penalty applies.
On all three payments: interest applies.
Runs from BETWEEN the due date to the date the payment is made.
It will be an annual interest so you’ll have to figure out a year, divide by 366 times by number of days.
What is the difference between the Class 1 NICs and how are they paid?
Class 1 Primary - Employees
Class 1 Secondary - Employers
Both on cash earnings and vouchers exchangeable for cash, goods and services. NOT BENEFITS
Both paid via PAYE and stick to those rules
How are Class 1 Primary NICs calculated?
On weekly and monthly bands.
Might need to break things down into separate weeks or monthly to calculate the full total of a year…
How are Class 1 secondary NICs calculated?
Annually, weekly or monthly
Its ok to use the annual limits whether or not an employee is paid evenly throughout the tax year
Who gets a discount on Class 1 secondary contributions?
Employees under 21
Apprentices under 25
USE A DIFFERENT RATE TABLE!