The Lemon Fool

(I apologize if this issue has already been discussed, I could not find it with a search.)

I will go straight to the point: what stops one from becoming "self-employed" in order to pay class 2 instead of class 3 NI voluntary contributions?

Am I wrong that anybody selling something on eBay can claim they are self-employed?

It depends on your profit.

If you are self employed and your earnings (profit) goes over £9569 then you pay class 4 NI of 9% on profits between £9,569 and £50,270 and
2% on profits over £50,270 rather than (as well as?) class 2 NI.
Plus income tax.

If you are self employed and don't trade or make losses year on year, expect HMRC to trigger a tax investigation.

absolutezero wrote:It depends on your profit.

If you are self employed and your earnings (profit) goes over £9569 then you pay class 4 NI of 9% on profits between £9,569 and £50,270 and
2% on profits over £50,270 rather than (as well as?) class 2 NI.
Plus income tax.

If you are self employed and don't trade or make losses year on year, expect HMRC to trigger a tax investigation.

Unlikely, you don't even have to report turnover less than £1000 I believe. I did this for a couple of years, no issues.

Scott.

swill453 wrote:

absolutezero wrote:It depends on your profit.

If you are self employed and your earnings (profit) goes over £9569 then you pay class 4 NI of 9% on profits between £9,569 and £50,270 and
2% on profits over £50,270 rather than (as well as?) class 2 NI.
Plus income tax.

If you are self employed and don't trade or make losses year on year, expect HMRC to trigger a tax investigation.

Unlikely, you don't even have to report turnover less than £1000 I believe. I did this for a couple of years, no issues.

Scott.

This is the 'Trading Allowance' that you can (if you wish) use if your gross income from self employment is less than £1,000.
As far as I know you do not have to be registered as self employed for this £1000 limit.
https://www.gov.uk/guidance/tax-free-allowances-on-property-and-trading-income#trade

It helps HMRC so they don't have to start messing about with piddling amounts of money (baby sitters, occasional handymen etc) and you also can't (IIRC) take your expenses away from your sales to reduce your profits so you lose the tax deductibility on any expenditure.

absolutezero wrote:As far as I know you do not have to be registered as self employed for this £1000 limit.

No, but you do have to be registered as self employed in order to be able to pay voluntary class 2 NICs.

mc2fool wrote:

absolutezero wrote:As far as I know you do not have to be registered as self employed for this £1000 limit.

No, but you do have to be registered as self employed in order to be able to pay voluntary class 2 NICs.

I think (haven't searched for evidence yet...) that you have to opt out of the £1000 trading allowance in order to pay vol class 2 NICs on income - so if you declare £100 profit, you'll also pay tax at your marginal rate on that. Obviously if you have zero profit in a given year, there'll be no tax. If I can find a link to prove i'm right, I'll post it later

chas49 wrote:

mc2fool wrote:

absolutezero wrote:As far as I know you do not have to be registered as self employed for this £1000 limit.

No, but you do have to be registered as self employed in order to be able to pay voluntary class 2 NICs.

I think (haven't searched for evidence yet...) that you have to opt out of the £1000 trading allowance in order to pay vol class 2 NICs on income - so if you declare £100 profit, you'll also pay tax at your marginal rate on that. Obviously if you have zero profit in a given year, there'll be no tax. If I can find a link to prove i'm right, I'll post it later

I know from first hand experience that you definitely don't get taxed on sums less than £1,000 but can still pay class 2 NICs.

It's not that you opt out of the £1000 trading allowance but rather that you choose to be explicit about it.

I do my SA return online but I also save, for my own records, the PDF of the return the online system lets you generate (the one with "Copy only Do not send to HMRC" plastered over every page). Looking at those PDFs now, under "What makes up your tax return" question 2, "Self-employment" says:

"If you worked for yourself (on your ‘own account’ or in self-employment) in the year to 5 April 2020, read the notes to decide if you need to fill in the ‘Self-employment’ pages. You may not need to if this income is up to £1,000. Do you need to fill in the ‘Self-employment’ pages?"

And my answer to that (even though mine is less than £1,000) is crossed Yes.

Then later on the "Self-employment (short)" page, I have the same (less than £1,000) amount in both box 9 "Your turnover – the takings, fees, sales or money earned by your business" and in box 10.1 "Trading income allowance – read the notes". Then later box 36 "If your total profits for 2019–20 are less than £6,365 and you choose to pay Class 2 NICs voluntarily, put ‘X’ in the box" is crossed.

IIRC the first time I did it I tried sticking £1000 into box 10.1 Trading income allowance, and it told me I could only enter as much as I'd put in box 9 Your turnover, and I rather suspect that if I had put more than £1000 into box 9 it would only let me put £1000 into 10.1.

P.S. Just looking at the online self assessment, and in the "Tailor your return" section it asks, "Was your turnover more than £1,000 in total from all self-employments?", and the help says "If your turnover from all self-employments including any miscellaneous income was up to £1,000 you should answer 'No' (unless it included a SEISS grant). This is exempt from tax and you do not need to report this on a tax return."

However, the help goes on to say "If you are self-employed and your income was £1,000 or less, you may choose to complete the 'self-employment' section if: ... you want to voluntarily pay Class 2 National Insurance contributions to build entitlement to contributory benefits like State Pension ...", and the only way to get it to present you the 'self-employment' section is to answer Yes to "Was your turnover more than £1,000...", even if it wasn't!

Just to confirm what others have said, I had a year with £0 turnover and filled in my self-assessment as:

"Was your turnover more than £1,000 in total from all self-employments?": Yes

I then declared my actual profit as £0 and ticked the box to pay voluntary class 2 NICs.

I was, however, registered as self-employed, and would have been happy to answer any questions from HMRC on those figures and why I was working with no income during that tax year!

VRD

vrdiver wrote:Just to confirm what others have said, I had a year with £0 turnover and filled in my self-assessment as:

"Was your turnover more than £1,000 in total from all self-employments?": Yes

No?

PinkDalek wrote:

vrdiver wrote:Just to confirm what others have said, I had a year with £0 turnover and filled in my self-assessment as:

"Was your turnover more than £1,000 in total from all self-employments?": Yes

No?

If you want to pay voluntary class 2 NICs, you have to answer yes (see up-thread), and then declare the actual number later. If you answer "no", you lock out the option to pay them. The guidance notes from HMRC confirm this is the correct answer for those in this situation.

VRD

Thanks for all replies.

So if I understand correctly:

If I do a bit of eBay selling and/or some private tuition (with a turnover less than £1,000), I can legitimately define myself as self-employed.

I can then check the relevant boxes on self-assessment online as suggested here and pay class 2 NICs without even registering as self-employed.

And all this would be above board (I do not want to do anything that is not perfectly legal)?

merluzzo wrote:Thanks for all replies.

So if I understand correctly:

If I do a bit of eBay selling and/or some private tuition (with a turnover less than £1,000), I can legitimately define myself as self-employed.

I can then check the relevant boxes on self-assessment online as suggested here and pay class 2 NICs without even registering as self-employed.

And all this would be above board (I do not want to do anything that is not perfectly legal)?

No I don't think so. I think you have to register as self-employed. I certainly did a few years back when I needed 2 years' contributions.

Scott.

swill453 wrote:

merluzzo wrote:Thanks for all replies.

So if I understand correctly:

If I do a bit of eBay selling and/or some private tuition (with a turnover less than £1,000), I can legitimately define myself as self-employed.

I can then check the relevant boxes on self-assessment online as suggested here and pay class 2 NICs without even registering as self-employed.

And all this would be above board (I do not want to do anything that is not perfectly legal)?

No I don't think so. I think you have to register as self-employed. I certainly did a few years back when I needed 2 years' contributions.

Scott.

You do indeed have to register as self-employed (https://www.gov.uk/log-in-file-self-ass ... f-employed) - as far as I can see, if you're already registered for Self Assessment for other reasons, you would only have to tick the box during tax return completion to get the self-employent pages to show up. It used to be that you had to register within 3 months of starting trading (or potentially pay a £100 fine) but I can't find any reference to this now.

EDIT: According to https://www.simplybusiness.co.uk/knowle ... h-hmrc-uk/ you need to register:

by 5 October after the end of the tax year in which you became self-employed.

chas49 wrote:You do indeed have to register as self-employed (https://www.gov.uk/log-in-file-self-ass ... f-employed) - as far as I can see, if you're already registered for Self Assessment for other reasons, you would only have to tick the box during tax return completion to get the self-employent pages to show up.

That wasn't the case a few years ago and I don't see any indication that it's changed. I was already registered for Self Assessment but to be self employed I also had to register as such. In https://www.gov.uk/register-for-self-assessment/self-employed it says:

"If you’ve filed a return online before

Re-register online (form CWF1) if the work you plan to do is different from what you did before."

And that was the form I had to fill in to register as self employed.

For those that have doubts about the whole scheme, https://www.gov.uk/set-up-sole-trader says (my emphasis):

"You need to set up as a sole trader if any of the following apply:

o you earned more than £1,000 from self-employment between 6 April 2020 and 5 April 2021
o you need to prove you’re self-employed, for example to claim Tax-Free Childcare
o you want to make voluntary Class 2 National Insurance payments to help you qualify for benefits"

When the person wants to fill in the self employed section of the tax return, which I did it in 2018 / 2019 to get the good lady one final years NI credit.

The person had to register as self employed with HMRC by some time in October 2018 to allow then to be able to fill in the "I want to pay voluntary NI" section.

I quoted the exact same text for the self employed business name on both the register as self employed with HMRC and in the additional self employed page in the tax return.

As a slight variation on the above topic. My wife is registered as self employed, does not need to complete an SA tax return due to low income.

She has not worked at all during tax year 20/21 due to the pandemic so has £0 earned income.

Can anyone tell me if she is ok to make Class 2 contributions. I cannot find any guidance on gov.uk that covers this scenario.

Thanks,

Juan.

JuanDB wrote:As a slight variation on the above topic. My wife is registered as self employed, does not need to complete an SA tax return due to low income.

She has not worked at all during tax year 20/21 due to the pandemic so has £0 earned income.

Can anyone tell me if she is ok to make Class 2 contributions. I cannot find any guidance on gov.uk that covers this scenario.

Thanks,

Juan.

Yes. and the answer is "yes"

I had zero earnings one tax year (2017/18) and paid voluntary NICS (class 2). I did fill out a tax return in order to do it, but I fill one out every year anyway.

As described above, the SA tax return will trigger the option if you check the box stating profits above £1,000, even though you then go on to declare £0 profit. It's weird, feels utterly wrong and yet it's the HMRC approved way!

VRD

vrdiver wrote:

JuanDB wrote:As a slight variation on the above topic. My wife is registered as self employed, does not need to complete an SA tax return due to low income.

She has not worked at all during tax year 20/21 due to the pandemic so has £0 earned income.

Can anyone tell me if she is ok to make Class 2 contributions. I cannot find any guidance on gov.uk that covers this scenario.

Thanks,

Juan.

Yes. and the answer is "yes"

I had zero earnings one tax year (2017/18) and paid voluntary NICS (class 2). I did fill out a tax return in order to do it, but I fill one out every year anyway.

As described above, the SA tax return will trigger the option if you check the box stating profits above £1,000, even though you then go on to declare £0 profit. It's weird, feels utterly wrong and yet it's the HMRC approved way!

VRD

Thanks VRD. The distinction I was trying to draw if that she does not need to complete an SA tax return.

I’ve found the appropriate link on gov.uk to pay voluntary class 2 NICs for those who do not complete SA tax returns. Posting here in case it helps anyone else https://www.gov.uk/pay-class-2-national-insurance.

Cheers,

Juan.

I do not know the current rules but for my daughter, long ago, during the period from when she was 16, until full time work after uni she was registered as self employed.
her income was always low less than? i believe the +/- £4k threshold.
she then elected to pay voluntary class 2 contributions, of at that time around £2 per week. She was told that there was no need, but she could if she wanted.
So it used to be allowed, what the current rules are I am unsure, but it may be ok.