New to self-assessment - question about Class 4 NI & service company question

[Nonsuch42]

Hi,

I started freelancing last August and have loved it so far. I've just started doing my self-assessment tax return and have realised it isn't as much fun. I decided to try and do it myself without an accountant, and while it's been a bit of a pain to get through I'm confident I've answered everything correctly so far.

I have hit some stumbling blocks in a few areas, mainly these two:

1. Class 4 National Insurance Payments. I was the employee of a company from April to August 2013, but have been self-employed since the end of August 2013. There was no overlap between my working for the company and my working as self-employed. I have obviously already paid NI on the money I earned as an employee, but I've only been paying the small class 2 NI payments since I've been self-employed. My combined (as an employee and as self-employed) income exceeds the class 4 NI income threshold, but my self-employed income alone does not. The SA form asks if I should be making class 4 NI contributions - based on that information, should I?
2. I find the "if you provided services through a service company" question a bit confusing and worrying. I've done work for a number of parties since I've been self-employed, but have always done the work on my own terms and in my own home. I consider myself to be self-employed in every sense, and am a bit worried about this question since I've read some discussions where people say it's linked to IR35 (which seems scary). I'm really not all that familiar with the implications of the question, so don't know if I should say yes or no. Does anything happen if you fill the box in with the amount you earned from service companies? Oh, and just to confirm I am in no way a shareholder in any of the companies I freelance for. I found that part of the questions positively mystifying.

I will consult an accountant if it becomes really necessary, but I've nearly completed the form so would like to do it all by myself if I can.

Thanks in advance for any replies!

[northernladuk]

I decided to try and do it myself without an accountant

Big mistake as you can are already finding out. You have had to ask about this, how much else haven't you asked about that you are getting wrong or not doing properly.

It's less than £1500 a year for a top notch accountant. Someone like Nixon Williams, SJD or InTouch will save you more than their fees by advising what you can and can't do and taking this headache off your hands.

Running your finances by asking an anonymous forum that don't know anything about your situation is not doing it properly.

[Nonsuch42]

Big mistake as you can are already finding out. You have had to ask about this, how much else haven't you asked about that you are getting wrong or not doing properly.

It's less than £1500 a year for a top notch accountant. Someone like Nixon Williams, SJD or InTouch will save you more than their fees by advising what you can and can't do and taking this headache off your hands.

Running your finances by asking an anonymous forum that don't know anything about your situation is not doing it properly.

I appreciate that sentiment but I'm afraid that isn't helpful. £1500 would be about a third of my entire income. If I do need to use an accountant, I won't be able to pay any more than £200 max.

[jamesbrown]

Based on the discussion of Class 4 NICs and the reference to being self-employed, I'm assuming that the OP is actually a sole trader and does not operate through a Ltd. In that case, I can understand - to some degree - why they aren't using an accountant. Since a sole trader is not a service company, it seems to be a pretty straightforward "no" to (2), i.e. IR35 does not apply as a sole trader (false self-employment is another issue, but the scope of this question is clear).

On Class 4 NICs:

HM Revenue & Customs: Class 4 National Insurance contributions

[jamesbrown]

Oh, and just to confirm I am in no way a shareholder in any of the companies I freelance for. I found that part of the questions positively mystifying.

I think this is the nub of your confusion. This isn't talking about the status of your clients. It's referring to you as a shareholder of your own company where you also perform a majority of the services for your clients. If you're operating as a sole trader, you cannot be a service company.

[Nonsuch42]

Based on the discussion of Class 4 NICs and the reference to being self-employed, I'm assuming that the OP is actually a sole trader and does not operate through a Ltd. In that case, I can understand - to some degree - why they aren't using an accountant. Since a sole trader is not a service company, it seems to be a pretty straightforward "no" to (2), i.e. IR35 does not apply as a sole trader (false self-employment is another issue, but the scope of this question is clear).

On Class 4 NICs:

HM Revenue & Customs: Class 4 National Insurance contributions

I think this is the nub of your confusion. This isn't talking about the status of your clients. It's referring to you as a shareholder of your own company where you also perform a majority of the services for your clients. If you're operating as a sole trader, you cannot be a service company.

Thanks a lot for responding -I don't operate through a Ltd. company and it seems that you're correct. I have indicated to HMRC that I'm operating as a sole trader. As I'm new to this I'm still not completely up to speed with all the jargon that's used and can get my terms mixed up. I'm mainly doing my own self-assessment as my financial affairs are relatively straightforward (it's practically all incoming payments, besides my insurance and electricity bills etc.) and I simply don't own enough to pay for an accountant. You've helped to put my mind at ease quite a bit!

[TheCyclingProgrammer]

Just to confirm what jamesbrown said, the service company question and IR35 have absolutely no relevance to a self employed person.

If there was ever an issue of disguised employment (I'm not saying there is), it would be your clients problem, not yours.

[Jessica@WhiteFieldTax]

On the class 4 NI issue, it applies only to your self employed income, not total income.

If you are using a electronic tax return of some sort, it should calculate automatically and tick the right boxes.

Dependant on total income there are annual head limits for total NIC paid across class 1 (employment), 2 and 4 but they are notoriously difficult to follow and apply.