8: NICs Flashcards

1
Q

What two types of NICs do self-employed people pay?

A

Class 2

Class 4

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2
Q

How are Class 2 NICs paid and who pays them?

A

Sole traders and partners (16 to state pension age)

Flat rate - 3.45 a week

Payment made through the self-assessment system

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3
Q

How does the lower profit limit works for Class 2 NICs?

A

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.

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4
Q

How are class 4 paid and who pays them?

A

Sole traders and partners (16 to state pension age)

Based off your tax adjusted trading profits

Payable on account/balancing payment

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5
Q

How are Class 4 NICs worked out, more specifically?

A

Bands, like income tax!

0%
9%
2%

Must be payment on account

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6
Q

What types of tax is POA required for?

A

Income Tax
Class 4 NICs
- for the first two payments

CGT
Class 2 NICs
- in addition on the balancing payments

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7
Q

What are the three key dates with POA?

A

31st Jan 2024 - First, during tax year
31st July 2024 - second
31st Jan 2025 - balancing

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8
Q

How are POA’s calculated and who is exempt?

A

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

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9
Q

What is included in the balancing payment?

A

Unpaid income tax

Unpaid self-employed NICs (including Class 2)

Capital gains tax

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10
Q

What are the steps to doing the POA?

A
  1. Figure out what the total income tax payable and class 4 NICs are for the year before. Pay the first two amounts of POA.
  2. For your balancing payment:
    - find the total tax that you owe
    - deduct what’s been paid
    - pay the rest
  3. On the same date, do your first POA for next year
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11
Q

How do late payments work with POA?

A

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.

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12
Q

What is the difference between the Class 1 NICs and how are they paid?

A

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

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13
Q

How are Class 1 Primary NICs calculated?

A

On weekly and monthly bands.

Might need to break things down into separate weeks or monthly to calculate the full total of a year…

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14
Q

How are Class 1 secondary NICs calculated?

A

Annually, weekly or monthly

Its ok to use the annual limits whether or not an employee is paid evenly throughout the tax year

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15
Q

Who gets a discount on Class 1 secondary contributions?

A

Employees under 21

Apprentices under 25

USE A DIFFERENT RATE TABLE!

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16
Q

How does the employment allowance work?

A

Employers receive this on their total Class 1 secondary NICs

Up to £5,000 per employer

Not available to:
- companies with one director and no other employeess
- companies with class 1 secondary NIC liability over £100,000 in previous tax year

17
Q

How do class 1A NICs work?

A

Paid by employers for taxable benefits
NOT including vouchers (which are class 1)

Charge is value of assessable benefit x 13.8%

Employment allowance cannot be offset