National Insurance - Help

axl2derv

Please explain Classes 2, 3 and 4.

I am led to believe that 2 is mandatory on income over £5,075, 3 is voluntary and 4 is charged at 8% on income between £5,715 and £43,875, then 1% on income after that.

Please help as I may have just lost my first client over my confusion.

Do self employed people pay 2 and 4 together if they earn over £5,715?

AdamR

Not quite sure about the actual figures you have quoted (but then again as I'm in practice, I'm a year behind) but yes you are correct, a self employed person would pay Class 2 & 4 NI. Class 2 is only something like £2.30/£2.40 a week though - it isn't related to profits.

Oh I see, your figures are for the 09/10 tax year! Nevermind lol!

NI Rates and thresholds here, other links to Income Tax etc. on left hand side.

farmergiles

self employed people pay the class two, normally on a monthly direct debit. They pay class 4 on their declared profit, not their turnover. It used to be advantageous for sole traders to become Ltd companies, to avoid the 8%. These days you have to weigh up wether it is more advantageous.

jilbo

They are the correct rates and thresholds for 2009-2010. Don't forget clients coming to you this year will want their 08-09 return doing. Class 2 are paid either quarterley or by monthly DD. Class 4 is obviuolsy paid along with the tax in January and July. Yes class 3 are voluntary for people who haven't paid enough contributions for one reason and another.

Try typing up all this sort of info and have it to hand when you speak to people over the phone. Have a check list of questions to ask them.

You'll get used to it, I still waffle on a bit with new clients, just come across friendly and approachable and the confidence will come.

jilbo

Oh yes and as the farmergiles so rightly says class 4 is paid on profits, forgot to mention that bit.

deanshepherd

Axl2derv, please don't take offence with what I am going to say but..

Are you sure you should be offering advisory services to the self-employed if you do not know which classes of NI apply?

The difference between Class 2/3/4 NI is so basic a topic that I would think you probably need a little more experience in practice before going it alone.

Offering advice to people when you are unsure is just going to lead to headaches and sleepless nights for you.

Good luck.

A-Vic

deanshepherd wrote: »

Axl2derv, please don't take offence with what I am going to say but..

Are you sure you should be offering advisory services to the self-employed if you do not know which classes of NI apply?

The difference between Class 2/3/4 NI is so basic a topic that I would think you probably need a little more experience in practice before going it alone.

Offering advice to people when you are unsure is just going to lead to headaches and sleepless nights for you.

Good luck.

Hi Dean

I do a lot of payroll at work well almost all from reg new employers, weekly monthly and yearly payroll, P30's sick pay, mat pay , submitting P35 on-line as well as nil returns to de-reg employers, but at times it feels like it the blind leading the blind - i dont want to take payroll for AAT its a lot to do both at the same time, do you know of CPD training offered in the form of day courses or anything like that?

Mainly just to keep upto date with any changes and to renforce what am already doing

Dean

The last couple of threads you have posted are quite worrying. I've said it before, and I’ll say it again - don't run before you can walk.

It's good to see you are ambitions and actively seeking your 'dreams' but it is apparent that to offer a complete service is too early for you.

Can you not contact a local practitioner and maybe work on a honorarium basis just to gain the required experience. Concentrate on completing your AAT studies and come back to it 12/18months later? You would be much better equipped then too.

Alternatively, my advice to you would be to be completely straight with your potential clients. Tell them where you are at before you commence any 'agent - client' relationship conversation. Least that way you can keep your integrity intact.

Regards

Dean

axl2derv

Hi Dean,

I have been used to just having incomplete records put infront of me and dealing with them. I don't have a problem with that. When you have to deal with the client direct, thats where my problem lies. I never had to learn about NI as I just recorded it as drawings when I did peoples bookkeeping. All the clients I dealt with where already set up. It is difficult for me to deal with businesses thats are thinking of starting up as I have not had the experience due to the partners dealing with that side. That should be no reason why I shouldn't be able to do self employed work.

deanshepherd

axl2derv wrote: »

It is difficult for me to deal with businesses thats are thinking of starting up as I have not had the experience due to the partners dealing with that side. That should be no reason why I shouldn't be able to do self employed work.

I'm afraid that is absolutely the reason why you shouldn't do self-employed work.

If you are comfortable with the book-keeping side of things then by all means offer that service but don't tell clients that you can 'do it all' when you do not yet have the experience. Stick with it - you'll get there in the end!

axl2derv

deanshepherd wrote: »

I'm afraid that is absolutely the reason why you shouldn't do self-employed work.

If you are comfortable with the book-keeping side of things then by all means offer that service but don't tell clients that you can 'do it all' when you do not yet have the experience. Stick with it - you'll get there in the end!

It's not just the Bookeeping though. I can do Tax and VAT returns and also production of financial statements. Things like NI and Tax questions can be learnt through CPD.

deanshepherd

axl2derv wrote: »

I can do Tax and VAT returns and also production of financial statements.

You can do Tax Returns without knowing what class 2 and class 4 NI are?

Best of luck to you - and your clients!

:laugh:

axl2derv

deanshepherd wrote: »

You can do Tax Returns without knowing what class 2 and class 4 NI are?

Best of luck to you - and your clients!

:laugh:

The NI figures where already prepared.

axl2derv

Last time I checked, the AAT didn't teach NI (or at least my college didn't). Thats must be learnt through CPD or those fortunate to work in practice.

Sue

Hi Axl2derv

I have to say I agree with both the Dean's. It is one thing preparing Tax Returns when you have someone else's knowledge to fall back on, but to offer the service yourself you need additional knowledge.

As well as this post you also have a post running asking about claiming for mileage, this is the sort of question Clients will expect you to answer straight away.

Sue

axl2derv

Hi Sue,

As you can see from the previous post, I knew the answer but the client thought differently. I have given reasons as to why I thought this. It's not that I lack the caperbility it is just that I am inexperienced at the self employed thing. I am used to having a senior to fall back on. You can't stay on the leash forever. You throw yourself in the deep end and you have no choice but to learn how to swim. The situation with the NI was a learning curve, now I won't make that mistake again. You learn something new everyday.

Sue

Hi

Perhaps the best solution would be to start by taking on Bookkeeping Clients only, then you will have an Accountant to double check with for anything you are unsure of.

If you can build up a good relationship with an Accountant in your local area they might recommend you to Bookkeeping Clients and you could recommend them for Accounts work and you will be able to learn a lot from them at the same time.

Sue

qwerty

I hope you don't take this the wrong way, but do you really think you are ready to offer your services to the public? People usually place a lot of trust in their accountant, and you really need to be on top of things to be able to look after peoples' financial affairs.

Using client's circumstances as a "learning curve" is definitely NOT the way to do things, after all this is their livelihood, and mistakes can be costly, and not just for the client but for the accountant too.

Please, take a look at the services you offer and if you do not yet have the skills required for that service don't offer it yet. Yes, learn, do extra courses to cover the things not offered by the AAT, but I believe it would be best not to offer these services for which you don't have a full understanding until AFTER you have training on that subject, rather than using client's real life situations to practice on.

axl2derv

My biggest struggle area is tax. I am confident with evrything else. Any ideas where I can get a good tax knowledge from?

Gem7321

Did you do the AAT tax exams at Technician? This is how I got all of my tax knowledge. If you haven't done them I'd recommend them.

qwerty

There are a number of options:

1. Association of Taxation Technicians qualification
2. Various courses offered by HMRC (although these by itself in my opinion would not be enough to provide sufficient knowledge)
3. Spending some time working in practice

Personally I think the third option would be best, as even in exams you are taught the theory of how tax works, but not the practical side, such as filling in the forms to make the claims etc.

Good luck with your practice, and I do hope you decide to withdraw from offering tax services until you have more training.

axl2derv

Gem7321 wrote: »

Did you do the AAT tax exams at Technician? This is how I got all of my tax knowledge. If you haven't done them I'd recommend them.

Unfortunately my college taught auditing which is a complete waste of time. I would have to study the tax unit on my own I think.

axl2derv

I want to do CIMA which is why I am trying to avoid practice. The practice is something that I want to build up on the side and eventually get a partner to join me and run it full time while I work in industry Monday to Friday, 9 -5.

If I go into practice, they will want me to study ACCA which means that I will only be able to do bookkeeping and as I have said, I want to do CIMA. After 5 years of being CIMA qualified, the ACA give you membership anyway, upon completion of a competency exam.

I can be an AAT MIP and still study CIMA which is what I want. I can do the AAT tax units as part of my CPD. If I can befriend a local tax accountant, that will be great too.

Bluewednesday

I admire your confidence but I do worry for your clients! Are you going to let your clients know that you are learning on the job?

I take it at the moment you are not practicing under an MIP licence?

What is so wrong with learning under/with someone else to start with? I think Sue's idea of taking on bookkeeping and learning from an accountant is a fantastic one, no risks for you or your clients. In my humble opinion you will learn much more that way than through a CPD course!

You have had lots of similar advice but appear to be ignoring it - why is this?

Sue

One way of gaining additional Tax experience would be to take on Bookkeeping Clients then maybe speak to their Accountants and ask if you could take the Tax Returns to draft stage, that way you will be learning but you won't have overall responsibility.

I'd previously thought that you were working in Practice, but I've noticed one of your posts say you want to work 9-5 in Industry?

I worked for a very small practice for a couple of years before going Self Employed and then a couple of days a week when I first went Self Employed -I personally think I needed that experience before setting up on my own. I was actually made redundant from the practice so I didn't have any guilt about gaining experience from them and then setting up on my own.

axl2derv

I will give you my situation to give you a better understanding of it.

I work full time as a bookkeeper for two businesses under the same owner. One is ltd and the other is partnership. I take the bookkeeping up to trial balance before the external accountant takes over. Apart from bookkeeping, I also do the VAT returns, bank reconciliations, journals, month end and management accounts on a basic level, inc. cash flow forecasting.

The position that I find myself in is very frustrating as I want to move on to an assistant management accountant role within a large organisation that will fund CIMA. Unfortunately in my residing area, the majority (99.9%) of jobs are through agencies that will not put you forward for these positions as they require good prior knowledge. The problem is that they all require good prior knowledge so you can’t get your foot on the ladder.

Another problem is that the employers are only taking on temporary staff so that they are easily disposable should cash flow become adverse.

I really have my heart set on CIMA but I became that desperate to progress that I did even try applying for practice positions and contemplated doing ACCA instead. I hit the same problem again as the practices are not recruiting at my level at present. I have unit 17 to do in two weeks then unit 11 in June. I have also be registered with the AAT for 7 years and completed 4 years of studying. I took 3 years out of studying but still continued to work in a financial environment.

I have completely surpassed my current position and need to move up. I wanted to do self employment as a means of giving two fingers to the employment market and saying that it won’t set me back from doing what I want to do.

As I have said before, my fall area is tax even though I did used to do tax returns in 2003 when I worked for a practice. Unfortunately I have forgotten what I was taught as I haven’t done one since then.

Even if I did get a position in practice, I really couldn’t afford to take the salary drop down to £12,000 which is what they are paying. I have a house, bills, loans and a family to support. If I took a practice job, FRS 18 would definitely kick in for me personally.

peugeot

Hi Axl2derv,

The main problem hindering people like yourself moving into big firms who will pay for CIMA is that large firms are currently tightening their belts. I know from another member on here who works for a very large firm who primarily pay for CIMA and she is under the threat of reorganisation, and they won't pay for her CIMA studies.

With the types of clients you are targeting (specifically sole traders/partnerships) invariably the advice they want and need is tax advice. Ok, there's the bookkeeping and accounts prep work, but nine times out of 10 you're going to be asked "can I claim for this?" "can I claim for that?" "how much tax:ohmy: why an on-account payment, what's that all about?" And then, let's not forget the bloke down the pub who's advice is always gospel to the client but far-fetched to say the least to the accountant dealing with the client's affairs. Dealing with clients tax affairs is far more widespread than simply calculating how much they owe/owed - the barrage of questions that invariably follow are vast and you need to be able to "think on your feet".

If self-employment is what you are desperate to do, then maybe start off with bookkeeping and take Sue's advice and try to canvass firms of accountants (particularly near the SA deadlines). The other alternative is to see if there is any scope for you moving up in your current position. You will also be in a better position to move up the ladder in your current role once your Unit 10 and 11 are complete and you have finally got your AAT qualification under your belt.

Good luck with whatever you decide.

Best wishes
Steve

qwerty

I did used to do tax returns in 2003. . . Unfortunately I have forgotten what I was taught as I haven’t done one since then

Unfortunately, tax is not a subject which you can ignore and then expect to pick it straight back up later. Tax laws change every year, and there have been a lot of changes since 2003. Even the Tax Returns themselves are different now.

You say you worked in practice back in 2003 - how long was this for? I believe people should not run a practice until they have worked in one, there are a lot of things you need to know and do, and not just the technicalities of tax either. And by working in practice, I am not talking a couple of months, I am talking about a decent amount of time to learn about how practices operate and what clients expect from their accountant.

One problem you may encounter if you apply for an AAT MIP licence is that you do not appear to have sufficient tax experience, and you therefore may not be to offer this service as a MIP

axl2derv

Unfortunately there is no progression in my current company is the work is outsourced beyond TB.

I could outsource the tax part and stick with the books.