New associates

30 December 2009
Volume 26 · Issue 1

Paul Clare shows how to stay on the right side of the taxman.

Keep spreadsheets of all income and categorise all expenses.

 

So, you’ve spent your year as a VDP and now you’re entering the world of the self-employed as an associate. There are all kinds of hoops to jump through to satisfy the Inspector of Taxes. Here’s a quick guide on what you need to do:

 

1. Register as self-employed

Self-employed people pay two kinds of National Insurance contributions – class 2 NIC and class 4 NIC.

Class 2 NIC is payable at a fixed weekly rate (currently £2.40) and entitles you to claim state benefits such as short-term incapacity benefit and maternity allowance, but also begins to build up an entitlement to a state pension. Class 2 NIC is normally collected monthly by direct debit or paid quarterly by cheque. You must register to pay class 2 NIC within three months of becoming self-employed. Failure to do so will attract a penalty of £100.

Class 4 NIC is paid with the remainder of your income tax and is based upon a percentage of your profits above a lower limit. Class 4 NIC attracts no state benefits whatsoever.

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