In their most recent bulletin, the Office for National Statistics reported a 15% increase in self-employment since April 2017. This brings the total figure of self-employed Britons to a substantial 4.8 million, and in austere times this freelance workforce has been the mainspring of British economic growth.
Some experts attribute this dramatic hike in self-employment to the mounting ‘gig economy’. Services such as Amazon, Deliveroo & Uber further contribute to figures with their usage of short-term contracts and casual labour.
Amidst this soaring boom in auto-entrepreneurship, it hardly comes as a surprise that the post-recession trend of free agency is shortly forecast to surpass the public sector, which has been in decline since the beginning of the decade.
National Insurance Contributions for the Self-Employed
Mature business owners will be, but even if you’re still in the fledgeling stages of setting up your own micro-enterprise, the odds are you will probably be familiar with National Insurance too. NI is a contribution that helps to fund services like The NHS whilst increasing your eligibility to certain state benefits such as maternity leave, bereavement leave and state pensions.
Salaried roles use PAYE to determine how much National Insurance and Income Tax is owed to Revenue & Customs. This figure is displayed as an automatic deduction on payslips issued by your employer.
Traditionally, unaffiliated workers qualify for lower National Insurance rates, and accordingly the way your NICs are paid slightly differs.
In order to be considered under the employ of oneself, your business must make a minimum annual profit of £6,025. If you meet these criteria, you’ll be required to make a ‘Class 2’ NIC at a weekly, flat-rate of £2.85.
The aforementioned contribution is often paid in addition to the more substantial ‘Class 4’ NIC. Your requirement to make this payment is determined by profit thresholds. Businesses turning over profits between £8,164 & £45,000 per annum are required to disburse 9% of their yearly profit to HMRC. Furthermore, if your income exceeds the upper limit, your ‘Class 4’ contribution falls to just 2% of your annual revenue, this decretion in NI is offset by increased income tax.
However, in a climate of turbulent and unpredictable economics, it’s of the utmost importance for small businesspeople to monitor reforms in financial policy and bear the legislature in mind when paying your contributions.
National Insurance Contributions Updates and Management
Earlier this year, the government announced their budget for 2017/18, and amongst other plans to close the national deficit, the Chancellor of the Exchequer disclosed that ‘Class 4’ NICs for self-employed people are set to increase by 2% in the next two years.
It’s also hugely important for you to keep thorough records and practice good bookkeeping skills in order to accurately asses personal NICs. Individuals who are uncertain of their NI class or employment status can verify this information on the Government website or by talking to us.
Accounting for National Insurance Contributions
If you are unsure about your NIC then talk to your accountant.
At Cottons Chartered Accountants we work with our clients to ensure they are managing their National Insurance Contributions in the most effective way in conjunction with efficiently managing a combination of salary and dividends.
We have accountants and tax advisors in Northampton and throughout the Midlands with offices in Daventry and Rugby. We also have accountants in London too as Cottons Chartered Accountants expand to the South East.
Talk to us about your business tax and accounting requirements.