Freelancers' Questions: Which taxes do sole traders pay this month?

Freelancer’s Question: Before I meet my accountant this week, I’d like to have some idea of the taxes he’s going to advise I pay as a sole trader who’s keen to get self-assessed in good time before the January 31 deadline. Can you advise me, so I’m prepared for what he’ll say?

Expert’s Answer: As a sole trader, you may be liable to pay Class 2 and Class 4 National Insurance.

Class 2 contributions are charged at a rate of £2.80 per week when annual profits are over £5.965; Class 4 National Insurance is a 9% charge on profits between £8,060 to £43,000, plus 2% for any profits over that threshold. However, Class 2 NI will be abolished from 2018, so this could be the last time you have to pay it!

There’s a possibility you’re exempt from both Class 2 and Class 4 National Insurance if you are over the age of 65. You may also pay a lower level of Class 4 if you are in receipt of income from an employment where you also pay Class 1 NI.

Additionally, it’s worth factoring in that, should you have losses from your self-employment, there might be a chance to utilise them for a reduction in your overall tax liability.

For instance, you could have self-employed sales of £20,000 in 2016/17, yet spent £25,000 on expenses, resulting in a net loss of £5,000. There are several options for how to utilise the losses – many of them are helpfully outlined by the Low Incomes Tax Reform Group. Good luck with your meeting!

The expert was Mike Parkes, technical director of GoSimple Software

 

16th January 2018

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