Retirement age NI bonus

When you reach the State Retirement Age (SRA) you stop paying Class 1 National Insurance contributions (NIC) if you are employed, and Class 2 contributions if you are self-employed.

You will still have to pay Class 4 NIC - the most significant self-employed NIC charge - for the entire tax year during which you reach the SRA. The next year you will be exempt.

If you are unsure when you will reach the SRA, there is a free "check your SRA" on the GOV.UK website at:https://www.gov.uk/state-pension-age.

For the self-employed, reaching the SRA can influence your tax planning options.

Ordinarily if a sole trader is profitable it may pay to consider incorporating the business as the combined Corporation Tax plus Dividend Tax may be less than the combined Income Tax and Class 2 and 4 NI contributions. However if you no longer have to pay the Class 2 and Class 4 NIC it may be more beneficial to continue as a self-employed person.

At a rule it is best not to generalise. There may still be good reasons for considering incorporation, but a rethink when you attain SRA may reduce your overall tax bill.

If you have any queries regarding your tax planning - particularly if you are an employer with questions about NIC and PAYE - please get in touch on 01785 248 939 for a free review and info on how our combined accounts and payroll services could save you money and stress.

Hope to hear from you soon,

Lisa Purshouse
Accountant
BA (Hons), ACCA