Monthly Archives: March 2022

Insuring the future with a look at the present (no gifts from the chancellor in this one)

how to link personal tax a/c to self assessment

Spring has sprung (OK, it is snowing as I write this but forgive me), the daffs are out, the sap is rising, what a time to be alive!

And what better time than to check out the latest episode of our favorite soap, “Downing Street”, starring Dishy Rishi and his magic red box of delights.

In this week’s episode, he’s got that special spring in his step too and who can blame him…it is time to reveal the latest changes to National Insurance (NI)…

Cue drums or brass band intro, depending on your preference of north vs south soaps. Scene opens with Dishy (sorry, Rishi – must be professional, all very serious here) stood at his little table thingy in Downing Street.

Flashes go off from the adoring/baying press, delete as applicable.

One intrepid hack ventures from the media scrum.

“What news from the spring statement Dishy?”

“Yeah, what’s all this about a fall in income tax?”

Dishy, urging the pack to settle;

“Ah, be calm my friends. We will come to that in good time. Probably. Maybe. A bit. However, remember, that when I give with this hand, I snatcheth away with this.” Much shuffling of papers ensues before a gentle cough signals the REALLY EXCITING news is about to be announced…

Presenter (Louise) takes over, Dishy in background, droning on…

So where are we at the moment for the 2021/2022 year?

Your employer will deduct 12% NI if your gross earnings are over £9568 (then goes to 2% above £50270). They also pay national insurance on your earnings over £9568 at a rate of 13.8%.

A self-employed person gets to pay Class 2 National insurance at a rate of £3.05 per week, and also pay class 4 NI at 9% if profits are over £9568 (then it goes to 2% above £50270).

In the 2021 the chancellor introduced a Social Care Levy of 1.25% of gross earnings & profits, taken from the employee, employer and self employed person. However, for the 2022/2023 tax year, to make things “SIMPLE”, the 1.25 percentage points would be added onto the national insurance paid.
Errr what?

Basically, the employee would pay 13.25% NI (3.25% if over £50270), Employer pays 15.05% on gross salary and self-employed pay 10.25% class 4 NI on profits until £50270 then at 3.25%.

Psst (stage instruction from wings).

If you earn money from dividends, you normally pay 7.5% on dividends over £2000 in a tax year, but for 2022/2023, that rate is now 8.75%. The rate for higher and additional tax payers also have an additional 1.25 percentage points.

Righto so what’s changed?

The social levy is still being introduced, so the rates of NI will still apply, but the thresholds are changing from 6 th July 2022.

Effect on the employee:

For salary in April-June 2022, anything above £823, will have NI deducted of 13.25%. For salary from July onwards, the monthly threshold changes to £1048 before any NI is deducted.

Effect on the Self-employed:

Although the threshold to pay class 4 NI increases to £12570 in the year, it only comes in from July 2022. That means when the self-assessment tax return is done from April 2023, the class 4 threshold will be £11908 before you pay any NI.

This is because you have 3 months at the lower threshold, then 9 months at the higher threshold. The system assumes an even split of earnings throughout the year and will not do a 3/9 month split of profits if income is seasonal. From 2023/2024, the full threshold will apply.

But more on 2023/2024 another time – oooooh I bet you can’t wait!

The effect of class 2 NI is the “interesting” bit. If you are into this lark. Profits between £6725 up to £11908 will not attract any class 2 amount to be paid, but full credit will be given for NI credit in relation to benefits and state pension. Taxable income above the amount will be charged at £3.15 a week so totalling £163.80 for the year.

The self employed with profits below £6725 can opt to pay the class 2 NI amount of £3.15 per week for the year to keep the benefits or not. It seems crazy that you have to pay £3.15pw if your profits are below £6725, but if you increase profits to just above the £6725, you will have nothing to pay as you get deemed NI. Let your accountant work this one out as to whether it is beneficial for your profits to go above the £6725 limit or not as it may inpact if you have to pay income tax should you have other income.

Directors of your own limited company

Well you are a special breed. you can pay yourselves £758.33 a month and not pay any employees or employers NI. Woo Hoo. This is the maximum of £9100 a year before employers NI kicks in, so if you think you can increae it to £1047.50 from July – think again. You won’t be paying employees NI as below the threshold, but that sneaky employers NI of 15.05% kicks in at £9100, so if you are set up as a director on the payroll, you will be paying NI for the last few months of the year.

If you need any further information, please contact us

A quick lesson on Very Annoying Tax aka “VAT” and Tuition - Performance Accountancy, a Chartered Accountancy firm in Berkshire - Working with performers

A quick lesson on Very Annoying Tax aka “VAT” and Tuition

As things have changed over the last 18 to 24 months, more and more musicians, singers and actors have turned to teaching online as live performances were non-existent.

Those that have done it really well (yay!) may have found that they are approaching the VAT threshold for the rolling 12 month period (boo!), especially when normal business starts to resume.

Now, this has actually sent many people into a bit of a head spin.

Suddenly they’ve got to register for VAT and charge 20% more than other people in their field!

Just when they were doing so well. It feels like you can’t win!

Now that is “VAT”!

People are even trying to concoct different ways around this VAT registration to keep their costs down and the need for reporting to HMRC quarterly.

Well, concoct no more, there’s absolutely no need to panic.

In fact, here’s some good news…

In general, fees from private tuition are EXEMPT from VAT and do not count towards the income threshold for VAT turnover.

Therefore, VAT does not have to be charged on these fees.

Yay again!

Hold your horses there teacher…

It is only exempt if certain conditions are met:

  1. Lessons are given by a sole trader or self-employed person or a member of a partnership.
  2. Private doesn’t actually mean one to one only. It can be one to many as sometimes tuition can only really work in a class.
  3. The subject must ordinarily be taught in a school or university.

Now you might assume that if it’s ordinary taught in school and university, then there would be an age limit.

Au contraire!

Even if tuition is given to a 50 year old, that person is still learning a subject taught in schools or university and therefore remains exempt from VAT!

Yay again! *begins small hopeful dance before reading on with trepidation*

Wait a minute, here comes the science – the REALLY boring bit.

Now, a self-employed person giving tuition cannot outsource that to another self-employed person and treat it as exempt income if they are VAT registered.

It has to be delivered by the self-employed person that is doing the billing to the clients. So be very careful. There’s no depping out tuition and getting away with it if you have income above the VAT threshold.

A bit of a nightmare keeping accurate records for that too!

So, you MIGHT decide, given you are doing other things as well, that you want to set up a limited company and put all the business through a limited company.


However, that’s where the situation gets a bit trickier so steady on there old bean and read on…

If you deliver tuition through a limited company and then start to break the VAT threshold, your lesson fees count towards the VAT threshold.

So you would need to charge VAT on them and may become, in effect, 20% more expensive.

“So what to do Lou?”

Deep breath. 

You could stick as a sole trader to deliver the tuition and put your other type of income, like performing income, into the limited company. 

That’s absolutely fine.

However, if you do split your business legitimately between teaching and performing, then you may not hit the VAT threshold in total because your limited company has one threshold and you as a person have another threshold.

Cunning eh?

In summary, providing you are self-employed, delivering the teaching yourself and the subject is normally taught at schools or university, there is no concern about having to be VAT registered for tuition.