With the proportion of people choosing to go self-employed growing year-on-year, ensuring your business is correctly formed and registered from the outset should be job number one.
Whether you’re a sole trader or trading as a partnership, if you’re self-employed you should ensure you are formally registered as so with HMRC. Without formally registering, you could be paying the incorrect (or even not paying at all) the correct amount of tax over to HMRC, which will inevitably catch up with you later.
National Insurance Contributions (NIC)
Those who are self-employed pay Class 2 NIC currently pay £2.85 per week. This ensures entitlement to state benefits (such as your state pension). Once you have paid one year’s worth of Class 2 NIC, you will obtain a “qualifying year” for the purpose of your state pension. Currently, you are required to have 35 “qualifying years” to ensure you obtain a full state pension.
Class 2 NIC will be paid out through your self-assessment tax return, historically it had been collected on a separate monthly direct debit payment, but this is no longer the case.
Self-employed individuals also pay Class 4 NIC – these are calculated as a percentage of profits. These contributions award no qualifying years towards state benefits. From 6 April 2018, Class 2 NIC will cease to exist, being replaced instead with Class 4, and based upon the individual’s profits. These changes will bring these contributions more in line with those in employment (who pay class 1 NIC). As with Class 2 NIC, they are collected during your self-assessment.
At CHW accounting Bolton, we suggest that before the scrapping of Class 2 NIC, you ensure you are registered as self-employed, and review whether you need to make voluntary contributions for previous years. In some instances, we may recommend choosing not to make voluntary contributions, depending upon your circumstances, so professional advice is recommended before taking any action.
In our experience, many businesses fail to complete all the relevant registrations on their own. As part of our business start-up package, LaunCHWorks, we take care of all of your company registrations, as well as sourcing funding. As part of this package, we also introduce you to our wide-reaching network of contacts who can often help businesses get off the ground.
For more information visit: http://chw-accounting.co.uk/what-we-do/launchworks/
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4 August 2020
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