It’s Tuesday! Let’s talk Tax!
Read this week’s short tax snippet for Doctors & Dentists, to help you save money and get more organised with your tax affairs. It’s just to give you a flavour – take 5 minutes to have a read.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. The Financial Conduct Authority does not regulate tax advice.
A few days after this article was published, the Chancellor revoked his decision about rising NI for the self-employed, after being rallied by business groups and Conservative party members that believed it was anti-commercial.
National Insurance to rise for self-employed
The recent Budget 2017 announced a tax rise for more than a million people trading as self-employed in the UK.
Are you a self-employed doctor or dentist? If so, the change is highly likely to affect you.
From April 2018 there will be an increase in Class 4 National Insurance by 1 percent and a further increase of 1 percent in 2019.
This means in 2018, NI will be 10 percent and in 2019, 11 percent, on profits earned over £8,060.
In financial terms, this means self-employed doctors and dentists, with profits of more than £8,060, will have a tax rise averaging £240 a year.
Anyone that is self-employed with profits over £16,250 will have to pay more as a result of these changes. The average increase will be £31 a year.
However, in 2018, Class 2 National Insurance is expected to be scrapped for the self-employed so this could have a counter effect.
How is National Insurance calculated?
Both the employed and self-employed have to pay National Insurance, after income reaches certain levels.
- Class 1 contributions are paid by employees as an automatic deduction by the employer
- Class 2 contributions are paid by self-employed workers when their income is more than £5,965 per year – it is a flat weekly rate, now paid under self-assessment
- Class 3 – is for voluntary top-ups
- Class 4 contributions are paid by self-employed as a percentage of profits, after profits reach £8,060 per year
*current limits
Why the increase for self-employed Class 4 NI?
The Chancellor announced increases to Class 4 NI with a view to levelling the tax paid for the employed and the self-employed. This diagram shows the difference in tax paid by someone self-employed or employed, based on earning £30,000.
Source – PwC Accountants
The self-employed do not have access to some of the benefits that paying National Insurance brings, hence they have historically paid less.
However, changes to the state pension means the benefit entitlement gap has narrowed, and the Chancellor believes this justifies the increase to NI for the self-employed.
Realistically though, the self-employed take more risks when it comes to their earnings, their tax and they retirement, so many feel they are getting a raw deal.
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