Q: I am a self-employed furrier. My accountants have prepared my accounts and say that I will be required to pay the HMRC £13,000 in January 08. They also say I will have to pay 50 per cent of estimated profits for 2007 up front. Why? Can I do anything to defer this?
Nov 22 2007
Email a friend
Answered by: Clive Lewis Ask a question
You miss some important details from your question so it is important you understand the principles involved. Payments on account of self employment liabilities to Income Tax and National Insurance Contributions are made on 31 January and 31 July and any balance is paid the following 31 January.
So a payment in January 2008 would be the first payment on account of the 2007/8 liability (for accounts ending in the tax year to 5th April 2008) together with any balance owing in respect of the previous year’s (2006/7) liability.
The payments on account are based on 50 per cent of the previous year’s liability. So it looks as though your profits in the accounts for the tax year ended 5th April 2007 were higher than anticipated, leaving a larger balance owing and making the first payment on account of the 2007/8 liability consequently larger.
For the 2007/8 tax year, if your Income (including profits from the furrier business) exceeds £5,225 tax is payable at 10 per cent. If it exceeds £7,455 tax is liable at 22 per cent and if it exceeds £39,825 you will be liable to tax at 40 per cent.
The basic National Insurance Contributions (NIC) is called Class 2 and for 2007/8 it is £2.20 per week usually paid by direct debit in 4 or 5 weekly instalments. But if your self employed earnings are less than £4,635 no Class 2 is payable.
The additional NIC is called Class 4. On profits between £5,225 and £34,840 the Class 4 rate is 8 per cent and on profits above £34,840 it is 1 per cent. There are some exemptions from Class 2 and 4 NIC contributions for the self employed such as if you are over the state retirement age.
Comments [1]