National insurance contributions query

Hi guys.
HMRC has sent me a NIC bill going back a year, even though I haven't declared any income. I just registered for self assessment. Can anyone exlain how NICs are calculated? I was under the impression it was based off yearly income like income tax. Does the standard 9k tax free allowance not apply?
Cheers

(edited 8 years ago)

Reply 1

STATER

Ive just read TSR wiki on taxes and it says they're based on weekly income. Without HMRC even having a clue about my level of income these guys have billed me £300??
Edit: £120 not £300

(edited 8 years ago)

Reply 2

2710

I just did my tax module so i do not know too much but:

NIC is different to income tax, and so has nothing to do with your Personal allowance of now 10,600

NIC is caculated on a period that you are paid. If you are paid weekly, you will use weekly bands, monthly, use monthly bands.

Class 1 NIC is Primary NI that all employees pay. This is normally paid automatically by your employer for you. It is calculated as 0% up to the first threshold (search it), 12% in the second band and 2% in the next band of salary and benefits that fall into the class 1 category. Btw these rates may have changed.

Is it a bill or a statemwnt that you receivwd? Maybe you underpaid your NI in your previous employment?.

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Reply 3

STATER

Original post by 2710

Is it a bill or a statemwnt that you receivwd? Maybe you underpaid your NI in your previous employment?.

Thanks for taking the time to respond. I received a letter with an outstanding bill and a payslip. I have never been employed and have never declared any income. I started a business ~ May 2014 (it made negligible income until September 2014). I registered for self assessment around 3 months ago in order to register the business. I don't know what happened but I only got an email acknowledging that HMRC has received the information I have provided (regarding the business), but it was never actually registered as far as I know. They did however send a letter saying that I have been registered for self assessment.. I wanted to get this sorted out earlier but I had A-level exams to deal with for the last 2 months.

(edited 8 years ago)

Reply 4

2710

Original post by STATER

Wait are you trying to say that because you hadn't declared any income you do not need to pay your liabilities?

You still need to pay the taxes on your business' income even though you had not registered. HMRC will just back date once you do register.

You also need to pay NI as a sole trader. You need to pay Class 2 and Class 4 as well.

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Reply 5

STATER

Original post by 2710

I'm just saying that I don't understand how they've calculated it. Seems completely arbitrary to me.
If no income was declared, how did they decide upon £120?

Reply 6

2710

Original post by 2710

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Reply 7

2710

Original post by STATER

I'm just saying that I don't understand how they've calculated it. Seems completely arbitrary to me.
If no income was declared, how did they decide upon £120?

Sorry my phone is being weird.

Oh i see.

Well class 2 is a flat rate, not dependent on income. Like 2 pounds something per week. It could be that pro rated? Which seems about right.

Or it could be something else. You can give them a ring and ask them.

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Reply 8

STATER

Original post by 2710

Well class 2 is a flat rate, not dependent on income. Like 2 pounds something per week. It could be that pro rated? Which seems about right.

Or it could be something else. You can give them a ring and ask them.

Okay, thanks for that.
One last question. I've heard that there are some kinds of taxes that are levied based on the value of the property to which the business is registered. Do you know anything about this? I was about to register it to my parents' property, but that would be a mistake according to a guy who has been self employed for a while.

(edited 8 years ago)

Reply 9

2710

Original post by STATER

Hm not that i know of, i am not a tax expert sorry haha.

However from what i have learnt from module is that if you have a business that uses a building for business, there are VAT implications in terms of capital goods scheme, however this is not related to the value of the building.

If the building is leasehold then you could also get deductions in terms of tax.

But aside from that i do not know of any that directly answers your questions sorry. You may have to wait for some more expert specialists. Or wait till i do my next tax course in December!

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Reply 10

STATER

Original post by 2710

Thank you

Reply 11

2710

Actually something i just remembered. What you may have heard may be capital allowances.

Essentially capital allowances reduce the amount of tax you have to pay, to put it simply. This is quite a large area, you can search it if you want. Essentially CAs are the tax mans version of depreciation.

So say you bought a machine worth £10,000 in the year, you will get an 18% allowance reducing balance year on year capital allowance which is £1800 in the firt year off your taxable.income. There are a lot of rules, like if it is an energy saving machine, it will get 100% first year allowance.

Buildings however, do not get capital allownces BUT the integral features such as lighting, heating systems, lifts etc do.

However you will need to research all of that to make an informed decision or hire an accountant!

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(edited 8 years ago)

Reply 12

STATER

Nice. Sounds like a big headache coming my way.

Reply 13

ian.slater

Original post by STATER

If you're self-employed you pay Class 2 and Class 4 NI contributions. Class 2 is about £100 a year if your self-employed 'profits' exceed about £5k. And then you pay Class 4 on profits after that. If your profits were below £5k you can apply for Small Income Exemption (or something). But they bill you until you have that.

The system changes a bit from this April ... Class 2 is collected from Self Assessment.