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.