IS NATIONAL INSURANCE A TAX?
You pay National Insurance to HMRC if you are above 16 years old and you are working as an employee earning a minimum of £ 183 per week. You will also have to pay National Insurance if you are self-employed and making a minimum profit of £ 6475 per year.
If you are self employed making National Insurance contributions you will be entitled to certain benefits such as state pension, contribution-based Employment and support allowance, maternity allowance etc. However, they will not be able to claim Contribution based job seeker allowance.
When you are employed, and you are working as an employee of the company the employer will deduct NI from the pay before you get the salary. When you are self employed you will have to pay NI when you are paying your income tax in your annual self -assessment tax return.
You will continue to pay NI until you are the state pension age.
There are different kinds of NI depending on the type of work you do:
Class 1: If you are an employee and earning more than £ 183 per week, your employer will automatically deduct NI from your wages.
Class 2: If you are self-employed and you are earning a profit of more than £ 6475 per annum you will pay NI in your self-assessment tax return.
Class 3: You pay Class 3 NI when you are earning less than £ 6475 a year voluntarily. So that you do not have a gap in your NI contribution record. This can affect your State Pension as you need to have ‘Qualifying years’ to be eligible to get full state pension.
Paying voluntary contributions is not that straight forward. You need to be eligible to pay voluntary contributions.
Class 4: If you are Self employed and earning a minimum profit of £9501 per year. You will declare your total earnings in your self- assessment tax return and then HMRC will calculate the National Insurance that you have to pay.
TAX ON COMPANY BENEFITS:
You do not have to pay tax on the company benefits unless they are cash gifts or can be converted into cash. In that case they can be treated as earnings and you will have to pay tax on the value of the gift.
The NI that your employer will pay on the company benefits that they give you are called Class 1A or 1B NI.
NI THAT YOU MUST PAY IF YOU ARE BOTH EMPLOYED, AND SELF-EMPLOYED:
In case you are both employed and self-employed, for example if you run a business as a limited company. You work as a director of the company and you get a salary from the company through PAYE. You will be paying Class 2 and Class 4 NI as part of your self-assessment depending on the level of your earning.
You will also be deducting Class 1 NI from the wages, through PAYE.
As the NI depends on the level of the earnings, you should be able to workout your total earnings from all the sources. This can be a little tricky and you might want to hire an accountant for that.
We at Taxaccolega have accountants and Chartered accountants who not only do your numbers but also advise you on how to improve your numbers, maximising your profits and minimising your costs, including your tax costs. If you want to save money yet pay your taxes on time and in the most efficient way contact Taxaccolega at 020 8127 0728 and our expert accounting teams in Croydon, Surrey and Southall will be happy to help you.