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National Insurance Contributions (NIC)

CLASS 1, 2 AND 3 NIC

As an entertainer, your fee income is likely to include both Class 1 and Class 2 fees, even though the Inland Revenue (HMRC) may regard them all as subject to Schedule D tax and not Pay As You Earn (PAYE). Class 1 is the NIC taken by the engager at source, whilst Class 2 is the one you might have to pay yourself. Class 1 encompasses “Fees for teaching/ invigilating at Educational Establishments” and “Contracts of Service” which covers a lot of the work under the aegis of TV, radio, theatre and (for “residencies”) cabaret.  Some engagers do not deduct Class 1 NIC, because they average your fees out over weeks of rehearsal and performance (or some such scheme) whereby you earn less than the weekly threshold for Class 1. The non-deduction of Class 1 does not thereby render a fee reckonable for Class 2.  Class 2 fees, on the other hand, cover “Private Pupils”, “Own Promotion”, “Composition”, “Sales of Music and Royalties”, “Sessions and other work under the baton of a conductor”, “Educational Establishments where the parents and not the authority pay you direct” and other “Contracts for Services”. If the Class 2 portion of your Net Profit (after depreciation) exceeds the threshold then you are liable to Class 2 NIC  If you are of the opinion that your accounts for the forth-coming year will show a net profit for your Class 2 portion below the said threshold of  you must obtain formal exemption from liability. You are not liable to pay Class 2 for weeks you are working abroad; but whilst lack of contributions can prevent that contribution counting toward your pension, any European Economic Community NIC will count in lieu. If you are below the threshold for Class 2 NIC, then look at your Class 1 NIC (already suffered at source on the other fees) and if you have paid insufficient Class 1 for that to qualify the year for pension, then you make it up with voluntary contributions (known as Class 3). Advise National Insurance Contributions office (NICO) in writing that you have commenced self employment and you can pay your Class 2 NIC contributions either by direct debit quarterly, or every three months, in arrears. If you have an engagement in another EEC country, you can arrange exemption from paying social security contributions to that country by phoning the HMRC at least six weeks before that engagement on 0191-225-4811 and obtain form E101. Please always remember to advise NICO of any change to your address.

CLASS 4 NIC

It is based on the net profit of your annual accounts but less Capital Allowances (which are based on enduring movable tangibles used in your business). . Where appropriate, you will need to apply to NICO for deferment of class 4 NIC and NICO will then eventually assess you for your class 4 liability and give to you credit for any relevant Class 1 contributions which you have suffered as schedule D income in the year to 5th April. Unless otherwise instructed by the NICO, HMRC includes Class 4 with your income tax bill.

ACTION

Click here to email Theresa Foreman for further information or if you would like to ask her a question.