If someone is paying class 1 national insurance and commence self employment at the same time, do they have to pay class 2 national insurance given that they are already paying class1?
Thanks.
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it depends......
If your income from employment is above certain limits then you may not have to pay class 2 national insurance. This explains the position: -
http://www.hmrc.gov.uk/working/intro/employed-selfemployed.htm#4
Also..
They can apply (and should do so) for an class 2 exemption on the grounds of small earnings. Even if the earnings are not 'small' the exemption once granted will last a year (and 3 when renewed). If you pay class one NIC's then paying class two's when you don't have to, is pointless.
Check overpayment
If income is sufficently large, they might end up paying Class 1, Class 2 and Class 4. It wil then probably be worth checking the limits to see if there's a repayment due. It would be more logical to work out the limit and then pay Class 4 to bring the total up to that limit but unfortunately you have to pay the Class 4 before you can get the repayment. Bizarre!
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I seem to recall that the calculation of the max NIC is quite complicated. I have a self assessmnet case at the moment whereby I have someone with salary of £28k and self employment of £23k. Does anyone have a link to a quick calculator available?
Blok
It's a case of following a series of steps, but I agree it's complicated. (I always need a cold towel on my head!) There are good worked examples in Tolleys NIC. I'm sure it's something that lends itself to a spreadsheet for anyone who's good with forumulae, so I suspect there's probably a calculator out there somewhere.
Form CA72B
You can defer Class 2 & Class 4 NI (leave Class 1 as is)
Method is to complete CA72B & send to Longbenton. Strictly speaking the time limit was 6 April 2011 but (allegedly) they are sympathetic to late applications- say a new source of income.
At some time in the future they will issue a calculation demanding any balance due. From what you've described I'd expect Class 2 to continue but Class 4 to be deferred. However try it and see.
Calculator
I *think* I've managed to build a working calculator (in Excel) that should work in all eventualities. Though I'd like to do a bit more testing before I share it. Just a couple of points I'd like to check though (when I get home tonight I'll run a few worked examples through it to test it).
If it works then you just have to select the financial year from a drop down, input the Class 1 and 2 paid and the total profits and the calculator does the rest.
I've used this as my reference guide http://www.hmrc.gov.uk/manuals/nimmanual/NIM24175.htm and I want to check two points:
1) Throughout the document it refers to 8% and 1% - i.e. the old Class 4 rates - I assume we should not use the 9% and 2% rates in calculations (at least for this financial year onwards?) I've built the calculator so that you just select the financial year from the drop down but I wanted to make sure that these calculations automatically account for new rates. The reason I'm slightly hesisitant is the HMRC page specifically refers to 8% and 1% whereas for the UPL and LPL it refers to the limits for the year.
2) In Step 9 it says: "Multiply the amount by which the profits for the year exceed the Upper Profits Limit by 1%". I assume this means if the profits do not exceed the UPL then this figure is zero? Again the only reason I ask is in other parts of the guide they specifically refer to figures being treated as nil if negative, whereas they have phrased the instruction slightly differently here (by saying take the amount it exceeds rather than saying subtract and treat as nil if negative as previously).
Assuming the calculator works I'll upload it to my website. If it doesn't I will deny all knowledge of ever having attempted it.....
Ok so it took a little longer to upload than I had expected (had some website issues...)
But the calculator at the following should do the Class 1/2/4 cacluation correctly. If anybody spots an error please let me know.