Understanding Changes to Collection.
There is some confusion as to how changes to the payment and collection of Class 2 NIC will affect the self employed person. The changes have already started to be implemented by HMRC.
Class 2, is and will continue to be, payable by self-employed.
Collection of Class 2 NIC, and it is only Class 2 NIC that is effected, will change from 2015/16 tax year onwards. The liability to pay Class 2 is altering from a weekly basis to a yearly liability- the amount due will be payable at the same time as your income tax and Class 4 NIC.
Existing six monthly bills and direct debit payments will both cease automatically during 2015, with the last payments being collected as follows:
· Last monthly direct debit payment collected 10 July 2015
· Last quarterly direct debit payment collected 10 July 2015
· Last 6 monthly bill due 10 July 2015.
HMRC will automatically cancel direct debit arrangements - so do not cancel any payments.
Class 2 NICs will be calculated based on number of weeks self-employment in the year.
Calculation of Class 2 NIC due will be at the same time as Income Tax and Class 4 NIC are calculated.
Class 2 liability will no longer be automatic; the liability, from 2015-16 onwards will be reported through the self-employed self assessment (SA).
If you report a profit below the new Small Profits Threshold (SPT), currently £5885, you will not be liable for Class 2 NICs - you will, however, be given the option to pay it voluntarily to protect your entitlement to contributory benefits. If you choose to not pay Class 2, as your profit falls below the SPT, HMRC should inform you of the potential impact of not paying voluntarily.
If you have low profits, or profits below SPT, and do not wish to pay Class 2 NIC, the change means that, from 2015-16 onwards, you will no longer have to apply for a Self-employed Exception Certificate (SEE).
If you are self-employed and on PAYE you will no longer have to apply for Deferment of Class 2 NICs - as the liability will not be assessed until after the end of the relevant tax year
Budget Payment Plan: HMRC have also announced that a Budget Payment Plan (BPP) will be available to all SA customers providing they are up to date with their payments. The customer can set up a BPP at any time.
You can set up a ‘budget payment plan’ to make regular payments in advance. The payment plan lets you:
• Decide how much to pay each week or month
• Stop paying for up to 6 months
You can set up your plan using your HMRC online account - you must be up to date with your payments and pay by Direct Debit. If the total you’ve paid during the year doesn’t cover your bill in full, you’ll have to pay the difference by the payment deadlines.
For more information on this subject please contact Cecile Hunt.
Cecile is licensed to practice in accountancy and has run her own business for ten years, she has a wealth of experience in advising and assisting start-ups, micro and small businesses in running their business' plus advising on, and dealing with, taxation issues, including VAT, of sole-traders, limited companies, partnerships and personal tax.
Cecile Hunt MAAT
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