Civil Articles
National Insurance contributions (NICs) are paid to build up a person’s entitlement to certain state benefits, including the State Retirement Pension. The amount that an individual is liable to pay depends on their own personal circumstances.
Who should pay National Insurance?
National Insurance is payable by all UK individuals aged over 16 that are either employed or self-employed and their earning are above a certain level. If you are an employee and reach the state retirement age you are no longer required to make NICs. Similarly if you are self-employed and reach the state retirement age you immediately are no longer required to make class 2 NICs, and from the tax year following the year you reached the state retirement age you are no longer required to make class 4 contributions.
The types of National Insurance contributions are detailed below:
Class 1 – paid by employees, sometimes politicians have referred to this as “an employment tax” or “a tax on Jobs”. Two elements to class 1 contributions which are employee’s contributions are deducted from an employees pay. Employer’s contributions are paid by employers when they pay employees.
Class 2 – this paid by self employed people. It is a flat rate regardless of earning (provided that the self-employed person has earning over a certain level, if earnings are lower than this level then a “small earning exemption” may be applied for). These are normally paid either quarterly via a bill from HMRC or monthly by direct debit.
Class 3 – These are voluntary National Insurance Contributions, in certain circumstances some people may wish to make these. For example, but not limited to, you have not made sufficient contributions in the year or perhaps you are living abroad but want to maintain your potential UK state benefits. It is highly recommended that you speak to an experienced professional prior to making such contributions.
Class 4 – These are payable by self-employed people in addition to Class 2 contributions, if their income is above a certain level. The level of these contributions are dependent on earnings. Class 4 National Insurance contributions are normally payable with income tax calculated on an individual’s Self-assessment tax return.
If you have any concerns about your National Insurance payments or record we suggest you contact a suitably qualified and experienced professional such as a South Wales Chartered Accountant.
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The author does not guarantee the accuracy of any information provided in this article and recommends that you do not take any action, whatsoever, based on the information provided. By the fullest extent permitted by law, the author does not accept any responsibility for any actions you may or may not take based on information contained in this article. This article contains general information and is not a substitute for specific independent professional advice.
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Tags: accountants
Posted in Taxes · July 25th, 2010 · Comments (0)
As contractors tax accountants here we often get asked about the origin of IR35 legislation. We offer a brief explanation: IR35 has been around since the 1999 budget news release. As the statement was numbered “IR35″ it was later to be simply referred to as IR35.
In the words of the Inland Revenue (now HMRC) they defined IR35 as follows:
“These rules were first proposed in the 1999 Budget news release numbered IR35. They have since become commonly referred to as “IR35”. The purpose of the rules is to remove opportunities for the avoidance of tax and Class 1 National Insurance Contributions by the use of intermediaries, such as service companies or partnerships, in circumstances where an individual worker would otherwise be an employee of the client or the income would be income from an office held by the worker. “(Inland Revenue 2004)
HMRC further comments about IR35 on its website: “The aim of the legislation is to eliminate the avoidance of tax and National Insurance Contributions (NICs) through the use of intermediaries, such as Personal Service Companies or partnerships”
IR35 rules apply in a situation where an individual would be considered an employee if it were not for the use of an intermediary, such as limited company or partnership. It follows that when a relationship between a worker and a client is reviewed to consider if IR35 is applicable, then it should be determined whether there would be an existence of an employee/employer relationship and thus a “contract of service”. The companies used in such a situation have often been referred to as “personal service companies”. “If a worker’s relationship with the business engaging his services is considered to be within the scope of IR35 then further income tax and National Insurance may become due.
Over the last ten years HMRC have raised a number of enquiries into potential IR35 cases with varying success and at the time of writing the current government has indicated that it will be soon reviewed. This is a complex and technical area of tax law so it is strongly advised that if you consider that you or your business could be affected by IR35 then you should speak to a Contractors Accountant who specialises in these matters.
As it has been announced by the new UK government that there is to be a review of IR35, it is important that you have a tax adviser such as Accountants South Wales that is up to date in this aspect of tax. IR35 is only one aspect of UK taxation legislation that affects contractors and so a complete review by a qualified competent accountant is highly recommended and should be undertaken on at least an annual basis. Each contract entered into must be considered on its own merits.
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Tags: Contractors Accountant
Posted in Taxes · July 16th, 2010 · Comments (0)