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National Insurance considerations in the Isle of Man

EMPLOYED / SELF EMPLOYED ?

As an Employee you pay class 1 National Insurance.  Your Employer makes an additional Employer contribution (12.8%).  Because of the additional cost to the business some businesses will attempt to treat you as self employed even though you are probably an employee.  If you are self employed, you have control over your work and when you work, and risk your own money in the business.  Employees work fixed hours under a contract of service and for a fixed salary.  Self employed individuals will work under  a contract for services.   Employee contributions are deducted at source from your salary.

SELF EMPLOYED NATIONAL INSURANCE AND PAYMENT

As a self employed individual you are required to pay your own national insurance contributions. You are required to register and this can be done at the Income Tax Division on Prospect Hill in Douglas. There are two elements; a small fixed weekly amount totalling around 100 per year; then a profit related amount  called Class 4 based on your business' s net profit.  The class 4 amount works out to 640 for every 10,000 earned up to 43,875 (2011) and 100 per 10,000 thereafter.  A lower profits limit allowance is available for deduction from the taxable business profits before calculating the Class 4 due.

Taxable business profits - 30,000

Less Lower Profits limit -     5,715

Class 4 due @ 6.4% on      24,285 = 1,554.2 (2010-11)

NB. tax relief is being abolished from 2011/12 so the Class 4 NIC rate applied will be 8%,  that is  a 25 % increase.

Payments of Class 4 are due with your income tax payment on 6 January.  If you are starting work your first bill will be the 6 January following the end of the tax reporting period.  The Assessor will also issue payment on account for the current tax year.  This means you have two years bills,  the first period and an estimate for the second.  If you make provision as described then all will be well. 

First years profits in the tax return to 5 April 2010

First bill -  Class 4 on profits to 5 April 2010 payable 6 Jan 2011

Plus           Est  Class 4 payment on account (2011) payable 6 Jan 2011

The estimated amount is revised when the actual amount is determined from the 2011 income tax return. 

IOM Tax Solutions provides accounting bookkeeping and tax services to local companies and individuals.

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