Class 2 NICs
In 2016 the government consulted on a proposed abolition of Class 2 National Insurance contributions (NICs) for the self-employed. This flat rate contribution, currently £2.95 a week is payable by the self-employed in addition to Class 4 contributions based on the level of profits. The flat rate contributions were due to cease on 5 April 2019 but will now continue “for the life of this parliament”.
The reason for the u-turn concerns businesses owners with low profits or making losses. In order to maintain their NI Contribution record, many self-employed individuals voluntarily continue to pay Class 2 contributions despite their profits being below the £6,205 small earnings exemption.
Having a full NI contribution history helps maximize an individual’s entitlement to State Benefits. For example full State Pension entitlement requires 35 years contributions.
With the abolition of Class 2 NICs, those with low profits or making losses would need to make voluntary Class 3 contributions (currently £14.65 a week, £761.80 a year) in order for that year to count as a contribution year.
CHECK YOUR CONTRIBUTION HISTORY
As mentioned above, in order to maximise entitlement to full State Benefits a full contribution record Is required. It is possible to check your National Insurance record online to see:
- what you’ve paid, up to the start of the current tax year (6 April 2018)
- any National Insurance credits you’ve received
- if gaps in contributions or credits mean some years don’t count towards your State Pension (they aren’t ‘qualifying years’)
- if you can pay voluntary contributions to fill any gaps and how much this will cost
Increase in Student Loans
Plan 1 and Plan 2 thresholds from 6 April 2019 and Postgraduate Loans (PGL)
The thresholds of Plan 1 and Plan 2 Student Loans are increasing from April 2019.
The current thresholds for the tax year 2018-19 are:
The Department for Education (DfE) has confirmed that from 6 April 2019 the thresholds will increase to:
Student loan deductions will remain the same at 9% for Plan 1 and Plan 2 loans.
New rules from 1 April 2017
You’ll be classed as a ‘limited cost business’ if your goods cost less than either:
- 2% of your turnover
- £1,000 a year (if your costs are more than 2%)
This means you’ll pay a higher rate of 16.5%.
If you aren’t a limited cost business, continue to use your business type to work out your flat rate.
Am I a Limited cost business?
There’s a calculator available to help businesses work out whether they’re a limited cost business – if you want to use the calculator, see the VAT Flat Rate Scheme – How much you pay page
Before you start you’ll need some basic information – use the information that relates to your most recent VAT return period. If you submit quarterly returns this will cover a 3 month period. If you submit annual returns this will cover a full year. You’ll need to know:
- your relevant turnover –
- the cost of goods – goods must be used exclusively for the purpose of your business and certain goods are excluded from this test.
You’re a limited cost business if the amount you spend on relevant goods including VAT is either:
- less than 2% of your VAT flat rate turnover
- greater than 2% of your VAT flat rate turnover but less than £1000 per year
If your return is less than one year the figure is the relevant proportion of £1000. For a quarterly return this is £250.
For some businesses this will be clear, other businesses –particularly those whose goods are close to 2% – may need to complete this test each time they complete their VAT return. This is because you can move from a limited cost rate of 16.5% in one period to your relevant sector rate in another. This would happen if your costs fluctuate above and below 2%.
If you’re a limited cost trader this means that you may pay more VAT than you do on standard accounting – you may want to check to make sure the Flat Rate Scheme is still right for you.
A business has a flat rate turnover of £10,000 a quarter. It spends £260 on relevant goods.
This is more than 2% of the flat rate turnover and more than £250 so the rate they need to use is the sector rate for their business.
More information can be found at Government Flat Rate VAT notice
We have produced a short animated video. Feel free to share…