Barrister: Registering for income tax and national insurance
You must tell HM Revenue & Customs (HMRC) that you are now self-employed. HMRC deal with your income tax and national insurance. You notify them by completing a form CWF1. We will complete and submit this form on your behalf. This forms doubles up for notification of both income tax and national insurance. If this is not submitted within three months from being on your feet, then you will be liable to a penalty of £100. There are four different classes of national insurance. As a self-employed barrister you will be liable to pay class 2 and class 4 national insurance. Class 2 national insurance is charged at a weekly flat rate. For 2008/09 the rate is £2.30 per week, payable if earnings exceed £5,435 per annum. Class 2 NIC is paid either by direct debit or on invoice:
- If you pay by direct debit you will pay monthly, normally on the second Friday of the month. The amount of the monthly payment represents either four or five weeks' contributions, depending on the number of Sundays in the previous tax month.
- If you pay on invoice you will be sent a bill quarterly in January, April, July and October.
We recommend that you complete the direct debit mandate, which forms part of the form CWF1, so that payment is taken from your bank account automatically each month. Class 4 national insurance is based on the net profit from your practice and is paid over at the same time as you pay your income tax. For 2008/09 there is no charge if your profits are less that £5,435. Profits of between £5,435 and £40,040 are charged at a rate of 8% and any excess profit above £40,040 is charged at 1%, without any upper limit.
Are you paying too much NIC?
If you have employment income (for example, from work as a lecturer) as well as your self employed earnings, you should take care to ensure that you do not pay more in national insurance contributions than you need to. National insurance will be payable in respect of both your employment and self employment, and the total could exceed the annual maximum. If you apply for ‘deferment’ of contributions then you can reduce the contributions you need to pay now – without a deferment you need to pay the full contributions due and reclaim any excess later, which will have an adverse impact on your cash flow.
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Where next?
Within Pupil barrister…
- Registering for VAT
- Opening a bank account
- Setting up your accounting records
- To what date do I prepare accounts?
- Will my pupillage awards be taxed?
- How can I borrow tax efficiently?
- When do I pay my tax?
- How much should I put aside for taxes?
- My first VAT return is due. Can you help?
- Which expenses can I claim against tax?
- Do I need to maintain a mileage log?
- Do I get full tax relief for my car and computer?
- Can I claim tax relief on my court clothing?
- Am I taxed on my receipts or my earnings?
- I have no history of earnings: how can I get a mortgage?
Within Barrister…
General…
