Accountants Guidance – National Insurance
As accountants, the team at Digivolve can help set you up as a sole trader.
Alternatively we can seamlessly migrate you from an existing accountants.
We use software such as Xero and Quickbooks along with Receipt Bank to help make this as easy as possible.
Making tax digital is coming into force soon for sole traders from April 2023, at that point all records will need to be digitally processed.
Don’t forget to Contact us today to help you get this set up ahead of time.
How does it work?
A sole trader is the simplest form of being self employed, this comes with the minimum requirement of submitting a personal tax return once a year.
Simply put we take your income less any business expenses, to arrive at a profit number, this is then subject to NI at the following rates:
0 – 9,500 – 0% NI
9,501 – 50,000 – 9% NI
50,001 + – 2% NI
There is then £3.05 a week of Class 2 NI to pay which is paid from when you start self employment regardless of income level.
A common question is around state pension credit for self employment and it’s this Class 2 NI which qualifies you.
Joe earns £60,000 a year on invoices sent to customers, he has business expenses of £10,000 and therefore has a profit of £50,000.
The NI on this would therefore be:
0 – 9,500 – £0
9,501 – 50,000 – £3,645
Class 2 NI is then due for 52 weeks at £3.05 so £158.60
This makes the total NI for the year – £3,803.60
From our experience many people understand the 20% tax, and it’s the 9% NI that catches people out.
Also if you earn £12,500 you only pay £428.60 NI altogether with no tax.
However if you then earn an extra £1,000 this is then subject to tax at 20% and NI at 9% . Therefore the liability ramps up quickly so this extra £1,000 costs £290 in tax and NI this often catches people out.
There is then tax to consider which can be found on our other blog post – Here
HMRC’s NI rates can be read – Here
To find out more about – Xero
To find our more about – Quickbooks
For us to help you understand your taxes please Contact us