Self-employed tax bills

Whether you pay income tax or National Insurance, the effect on your cash flow is the same. The payments are a necessary part of our obligation to fund the activities of State, but the self-employed are often surprised that their bi-annual tax payments cover both “taxes” – NIC and income tax.

The weekly NIC Class 2 contribution is included, presently £2.95 per week, also Class 4 contributions: these amount to 9% of taxable income in excess of £8,424 and up to £46,350, and 2% on earnings above £46,350.

Accordingly, the combined rate of State dues on self-employed earnings in excess of £8,424 is potentially 29% – 20% basic income plus 9% Class 4 NIC – and over £46,350 a combined rate of 42%. Although in practice some of the income over £8,424 may be covered by other personal tax allowances, these combined rates illustrate the true impact of income tax and National Insurance to be paid.

Self-employed traders with significant taxable earnings should therefore expect to pay more than the usual rates of income tax when they contemplate settlement of their annual self-assessment bill and have funds in reserve to meet these combined liabilities.

Latest Blog
28
Mar

Is this a good time for property owners?

The recent Spring Budget did little to make the life of those letting, buying or sell...

Read More
26
Mar

Stand out from the crowd

It’s interesting to consider the challenges that are plaguing small businesses ...

Read More
21
Mar

Child Benefit claw-backs

One of the more impactful changes in the recent budget was the easing of the High Inc...

Read More
19
Mar

Save on Easter child-care costs

HM Revenue and Customs (HMRC) issued a press release recently reminding working famil...

Read More