Many people will be familiar with the basic difference between the National Insurance paid by employees (Class 1 National Insurance Contributions), and that paid by self-employed individuals (Class 2 and Class 4 NICs).
However, this distinction is blurred when it comes to our clients who are actors, dancers and other entertainers. They may be treated as self-employed for tax purposes, but at the same time they are deemed to be employees for National Insurance purposes.
The impact of this is that most individuals working in the entertainment industry will pay employees’ NICs at source on self-employment income. The entertainer is therefore in the unenviable position of having to pay Class 1, 2 and 4 NICs, with the result that they end up overpaying National Insurance.
The solution is to make an adjustment to the profits chargeable to Class 4 NICs on the Self-Assessment tax return. This adjustment ensures the individual does not overpay National Insurance, or suffer both Class 1 and 4 NICs on the same income.
The problem is that it is easy to forget to make the adjustment. It is also possible to claim the adjustment in the wrong box of the return, or to inadvertently make an incorrect adjustment. All of these things can increase the risk of an enquiry into the return by HM Revenue & Customs.
In summary, if you feel there is a risk that you might overpay National Insurance, you should seek specialist advice to ensure your return is completed correctly.
The information in this article was correct at the date it was first published.
However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.
If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.
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