EMTACS
Entertainers and Musicians Taxation & Accountancy Services
69 Loughborough Road, West Bridgford, Nottingham, NG2 7LA
Phone 0115-981-5001 Fax 0115-981-5005

NATIONAL INSURANCE CONTRIBUTIONS
- THE RELUCTANT USER'S GUIDE

Part I | Part II

Deferment

This is the most complicated situation that can crop up. The problems come from the fact that the Inland Revenue and the National Insurance people use different rules to decide whether or not a particular job is Employed or Self-Employed. So, if the NI people decide the job is an employment, you'll pay Employee (Class 1) type Contributions on the money you get. However, the Inland Revenue may see the same job as Self-Employed and if you do nothing about it, the wage is included in your Self-Employed Accounts and you will find yourself paying Self-Employed (Class 2 and 4) type Contributions on the same money all over again. Even the Revenue accept that this is unfair and it's not too tricky to stop it happening.

It used to be dealt with by deferment but that's old hat now. The first thing is to find out what proportion of your income has Class 1 NI taken from it before you ever see the money. Then it gets confusing.

We look at the profit on which you have tax to pay for (say) 2006/07. From that figure you subtract the amount of fees you had that went through the NI system and you only have Class 4 NIC taken from what is left, after allowing for the first £5,035 being NI-free. So suppose you have income of £25,000 of which £9,000 is from a source that was NI'd and you have expenses of £10,000.

All of this arithmetic happens on your self-assessment Return (or rather we do the maths) and there's no need for the deferment process that used to be unreliable and took ages.

If after ignoring the Class 1'd income, you have Class 4-able income of less than £5,035, you can also get out of paying Class 2 NI (the £2.10 per week stuff). To do this, you have to fool the system slightly by saying that your self-employed income will be below the limit, which is true if you see if through purely National Insurance eyes, but rubbish when seen through taxman's eyes.

There is one other category of people who are entitled to Deferment and that is those with affluent jobs. There is a limit to the amount of National Insurance that anybody has to pay, regardless of what their various sources of income are and if you are an employee earning more than £33,400, you will have reached that point, whether or not the Revenue see this income as Self-Employed. In these circumstances, you can confidently apply for Deferment, knowing that you've already paid enough. They will still take an extra 1% from your self-employed profits beyond that but that's just unavoidable.

This whole area is a very confusing one and manages to fox most ordinary firms of accountants because they don't get to see people in the entertainment industries very often. It even confuses the majority of the people working in the National Insurance office, so don't worry if you don't feel that you've completely understood everything. However, it is something we do know thoroughly, so don't feel shy. Just ring us and ask.