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Class 4 Ni Contributions
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If these do not count towards state pension contribution nor any other kind of state benefit, what is the money going to? Where does HMRC put the money?
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Morning dotty.
For as long as I can remember, NI has just been another form of tax. Yes, our contributions usually affect our entitlement to pensions and (for the right class of NI) to contribution- based Job Seekers' Allowance, but really it just goes into the government's pot of money (or reduces its debt/deficit). And of course some people pay in for 40-50 ,years rather than 30, or earn significantly more and therefore pay maybe 3 times as much NI over their lifetime yet get no more pension.
The NI contributions paid by employees don't really cover the cost of state pensions anyway. Someone on average earnings over 30 years will qualify them for a state pension but these lifetime NI contributions will usually be lower than they then receive in pension over a retirement period of say 20 years.
For as long as I can remember, NI has just been another form of tax. Yes, our contributions usually affect our entitlement to pensions and (for the right class of NI) to contribution- based Job Seekers' Allowance, but really it just goes into the government's pot of money (or reduces its debt/deficit). And of course some people pay in for 40-50 ,years rather than 30, or earn significantly more and therefore pay maybe 3 times as much NI over their lifetime yet get no more pension.
The NI contributions paid by employees don't really cover the cost of state pensions anyway. Someone on average earnings over 30 years will qualify them for a state pension but these lifetime NI contributions will usually be lower than they then receive in pension over a retirement period of say 20 years.
Eddie I am finding it very confusing on the HMRC and CAB websites, they seem to contradict each other, one says the class 4 do not count to benefit but do count to pensions and the other says they count for neither,
factor where can i find difinitive info on where this tax goes? i'm not getting the answers i feel satisfied with by using a google search, cheers
factor where can i find difinitive info on where this tax goes? i'm not getting the answers i feel satisfied with by using a google search, cheers
This may help
http://
Self employed people pay class 2 contributions:
"Class 2
Class 2 contributions are fixed weekly amounts paid by the self-employed. They are due regardless of trading profits or losses, but those with low earnings can apply for exemption from paying and those on high earnings with liability to either Class 1 or 4 can apply for deferment from paying. While the amount is calculated to a weekly figure, they are typically paid monthly or quarterly. For the most part, unlike Class 1, they do not form part of a qualifying contribution record for contributions-based Jobseekers Allowance, but do count towards Employment and Support Allowance.
Self employed people also pay NI (class 4) on profits:
"Class 4
Class 4 contributions are paid by self-employed people as a portion of their profits. The amount due is calculated with income tax at the end of the year, based on figures supplied on the SA100 tax return.
Contributions are based around two thresholds, the Lower Profits Limit (LPL) and the Upper Profits Limit (UPL). These have the same cash values as the Primary Threshold and Upper Earnings Limit used in Class 1 calculations.
No class 4 NICs are due on profits up to and including the LPL.
Above the LPL, up to and including the UPL, class 4 NICs are paid at a rate of 9% (tax year 2011-12).
Above the UPL, class 4 NICs are paid at a rate of 2%.[10]
Class 4 contributions do not form part of a qualifying contribution record for any benefits, including the State Pension, as self-employed people qualify for these benefits by paying Class 2 contributions."
http://
Self employed people pay class 2 contributions:
"Class 2
Class 2 contributions are fixed weekly amounts paid by the self-employed. They are due regardless of trading profits or losses, but those with low earnings can apply for exemption from paying and those on high earnings with liability to either Class 1 or 4 can apply for deferment from paying. While the amount is calculated to a weekly figure, they are typically paid monthly or quarterly. For the most part, unlike Class 1, they do not form part of a qualifying contribution record for contributions-based Jobseekers Allowance, but do count towards Employment and Support Allowance.
Self employed people also pay NI (class 4) on profits:
"Class 4
Class 4 contributions are paid by self-employed people as a portion of their profits. The amount due is calculated with income tax at the end of the year, based on figures supplied on the SA100 tax return.
Contributions are based around two thresholds, the Lower Profits Limit (LPL) and the Upper Profits Limit (UPL). These have the same cash values as the Primary Threshold and Upper Earnings Limit used in Class 1 calculations.
No class 4 NICs are due on profits up to and including the LPL.
Above the LPL, up to and including the UPL, class 4 NICs are paid at a rate of 9% (tax year 2011-12).
Above the UPL, class 4 NICs are paid at a rate of 2%.[10]
Class 4 contributions do not form part of a qualifying contribution record for any benefits, including the State Pension, as self-employed people qualify for these benefits by paying Class 2 contributions."
According to the HMRC website the self employed class contribution is only £2.70 a week!. So the additional NI paid via class 4 contributions based on profits probably means they are paying similar NI to an employed person.
"If you're self-employed you pay Class 2 and Class 4 National Insurance contributions. The rates are:
Class 2 National Insurance contributions are paid at a flat rate of £2.70 a week
Class 4 National Insurance contributions are paid as a percentage of your annual taxable profits - 9 per cent on profits between £7,755 and £41,450, and a further 2 per cent on profits over that amount.
If your profits are expected to be less than £5,725 you may not have to pay Class 2 National Insurance contributions.
Your Class 2 National Insurance contributions payments are due on 31 January and 31 July, the same as a Self Assessment tax bill. You pay Class 2 National Insurance contributions either monthly or six monthly by Direct Debit – follow the first link below for more information about payment dates.
You pay Class 4 National Insurance contributions when you pay your Income Tax."
"If you're self-employed you pay Class 2 and Class 4 National Insurance contributions. The rates are:
Class 2 National Insurance contributions are paid at a flat rate of £2.70 a week
Class 4 National Insurance contributions are paid as a percentage of your annual taxable profits - 9 per cent on profits between £7,755 and £41,450, and a further 2 per cent on profits over that amount.
If your profits are expected to be less than £5,725 you may not have to pay Class 2 National Insurance contributions.
Your Class 2 National Insurance contributions payments are due on 31 January and 31 July, the same as a Self Assessment tax bill. You pay Class 2 National Insurance contributions either monthly or six monthly by Direct Debit – follow the first link below for more information about payment dates.
You pay Class 4 National Insurance contributions when you pay your Income Tax."
I agree, Hopkirk. The term /national insurance' is a misnomer. All the money from tax and Ni goes into one pot.
The only caveat is that whilst the amount of tax paid has no bearing on any entitlement to anything (benefits, pensions, schools, NHS), NI contributions do have some bearing on entitlement to CB JSA and state pensions
The only caveat is that whilst the amount of tax paid has no bearing on any entitlement to anything (benefits, pensions, schools, NHS), NI contributions do have some bearing on entitlement to CB JSA and state pensions
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