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3 quick items of interest

Just a three quick items of interest if you are self-employed, or are self-assessed taxpayer….

Class 2 NIC’s

It was announced in the recent 2016 budget, that Class 2 National Insurance Contributions would be scrapped from April 2018. Yes…you read that correctly !. Currently you are paying £2.80 per week if you earn a PROFIT greater than £5,965 per year. The current (recently introduced) arrangements are that you will be paying these from your tax bill, but from April 2018 all will be scrapped !.

Digital Tax accounts

Announcements have been made over the last year or so about everybody having a digital text account (DTA) by 2018. Basically what this means is, that instead of lodging yearly tax returns, each new DTA will need to be updated on a quarterly basis. HMRC are keen to to stress that this is not four returns per year, but four “updates”. We do not know what this means yet, but we will need to develop a system to accommodate this once we understand how HMRC will be working, I’m sure we will be able to work out a simple system that will ease your administrative burden. I will keep you updated as much as possible. The thinking behind the quarterly updates is that;

– record keeping will be more timely,
– mistakes will be eliminated,
– it will be easier to facilitate budgeting of tax and payments.

Pensions 

You may be aware of the current auto enrolment provisions. The idea is that every employee will be in a pension scheme. However what about the self employed, and self assessed ?.

Well, so far, you have been paying Class 2 NIC’s. This was a contribution to a standard pension, currently £119.30 per week (if you had “no gaps” in paying which is 35 years)

However, you can make voluntary contributions by paying extra if you have low income (profits under £5,675), or are a minister of religion. This is called “Class 3 NIC”. You pay Class 3 voluntary National Insurance to fill gaps in your contributions record. Class 3 NIC is currently £14.10 per week or £733.20 per year.

Other than that, the only way to “top up” is to pay separately into a pension fund (or ISA, but lets look at pension funds first).

You can choose between a “personal pension”, a “stakeholder pension” or a “self-invested personal pension” (commonly known as SIPP). The differences are the level of charges you have to pay, the flexibility about when and how much you can save, and the investment choices available to help grow your pot.

So here are some options that you can combine; depending on your circumstances and preferences;

– Class 3 NIC at £14.10 per week
– contribution into a “personal pension”, a “stakeholder pension” or a “self-invested personal pension” (commonly known as SIPP)
– Paying into an ISA.

The ISA will be flexible. You have instant access if a rainy day appears. You won’t have a weekly amount to worry about. You can put in what you like. The returns are tax free.

By the way, the personal allowance for this financial year (2016/2017) is £11,000. For the 2017/2018 year, it will be £11,500.

Peter