Q. I am thinking of going self-employed. Will I still be able to get a State Pension when I retire and must I pay National Insurance and Income Tax?
(Anonymous entrepreneur by email).
A. Self-employed people may certainly be eligible for a State Pension.
Indeed, some self-employed people reaching pension age from April 6 will be among the biggest gainers from next year’s pension reforms.
Like anyone else, of course, they must have a sufficient record of National Insurance.
They are liable to pay National Insurance Contributions and Income Tax if their net profits are above a certain level.
These profits may be less than earnings, because certain work-related expenses are deducted.
If net profits are above £5,965 a year their National Insurance Contribution is £2.80 a week and this goes towards their State Pension.
They must also pay an additional contribution equal to 9% of their annual profits over £8,060.
They are exempted from paying National Insurance if their net annual profits are below the small profits threshold of £5,965, but if they do not pay they will not be building up an entitlement to State Pension.
However, those on Working Tax Credit who are below the small profits threshold get National Insurance Credits that will increase their State Pension entitlement.
If you are going self-employed your first step should be to register for National Insurance and Income Tax with HM Revenue and Customs online, or you may wish to ring their helpline on 0300 200 3505.
Q. You recently said that Tax Credits are based upon taxable income only, but my partner cannot get Working Tax Credit because they are taking a non-taxable allowance into account when calculating his claim. He is a LGV driver and the allowance is for showers and the use of other facilities when he is away. Is this right?
D by email.
A. The Tax Credit Regulations include a list of types of employment income that should be disregarded.
One of these is ‘payment in respect of expenses which are wholly, exclusively, and necessarily incurred in the performance of the duties of the claimant’s employment’.
It seems wholly reasonable that the payments your partner receives from his employer for showering and other facilities when away from home should be treated as falling within this category.
I would advise your partner to write to the Tax Credit Office in these terms and ask them to look again at their decision.
If they do not change it, he should appeal. Of course, even if these payments are disregarded, your partner’s income may still be too high for him to qualify for Working Tax Credit.