3s – Tax and National Insurance – Scottish residents

Last Updated on 16 May 2024

The Chancellor announced changes to national insurance at the Autumn Statement on 22 Nov 2023 and the March Budget. These include the abolition of Class 2 NI for sole traders with profits of £6,725 or more from 6 April 2024. With lower profits Class 2 is now voluntary. Class 4 NI goes down to 6% of profits over £12,570. (It was 9%). Class 1 for PAYE people is 8% from 6 April 2024. (It was 12% up to Dec 2023.)

Do you live in England, Wales or Northern Ireland? We have a different help sheet for you!
See help sheet 3 for tax and NI in England, Wales and Northern Ireland >

National Insurance for employees/PAYE

Employees and company directors pay their NI via the company PAYE system. This is Class 1 National Insurance and is a percentage of the salary, normally 8% (2024-25 rate).

National Insurance for Sole Traders (self-employed):

Sole traders pay two types of National Insurance:

  • Class 2 – £3.45 per week in 2024-25. This is based on how many weeks of the previous tax year you were registered as a sole trader, not whether you had any income.
  • Class 4 – 6% of profits (from the self-employed business) in 2024-25 between £12,570-£50,270 (2% on taxable profits above £50,270)

Class 2 and Class 4 NICs are now both taken through the tax return system at the end of the tax year.

If you’re fully paid up, Class 2 NI contributions entitle you to:

  • Employment & Support Allowance (if sick or self-isolating)
  • Maternity allowance
  • Bereavements benefits (if you lose your spouse/civil partner)
  • State pension

Sole traders must make Class 2 contributions if under state retirement age. You will not need to pay if your earnings are less than the Small Profits Threshold of £6,725 per year (2024-25) – though it may still be worth paying to ensure your National Insurance record is complete if you are not making other NI contributions. You get a ‘credit’ on your NI record between the small profits threshold and £12,570. You don’t actually pay, but it’s as if you have.

Sole traders have to pay Class 4 is when profits are more than £12,570. It’s 6% on profits above that threshold.

Making Voluntary Contributions (Class 3)

Class 3 are voluntary contributions, used to fill gaps or if you’re overseas or not working. The rate is £17.45 per week (2024-25)

From 6 April 2023 you can only go back up to 6 years to fill gaps. Read more here:
https://www.gov.uk/voluntary-national-insurance-contributions/deadlines >

Note: You are allowed to be both self-employed and employed at the same time, but be careful that you are not overpaying National Insurance contributions, as your employer pays your Class 1 NICs through the PAYE system.

Tax

Sole traders will pay income tax on the business’s profits, after you’ve taken into account allowable business expenses, pension contributions, capital & personal allowances.

Some key dates for sole traders (and other income tax payers)

  • The income tax year runs 6th April to 5th April
  • 31 January – deadline for getting information to HMRC about the previous tax year’s income and expenditure.
    Also the deadline for paying tax owing from the previous year(s) AND half the forecast amount owing for the current tax year. (This is called ‘payment on account’. See my blog entry explaining what it is >)
  • 31 July – deadline for any outstanding income tax not paid by the previous January.

It can take a couple of weeks to get your Government Gateway log in. So don’t leave it to January!

NB: Tax reporting is going digital soon. See help sheet 4.

Limited Companies

Must register with HMRC for Corporation Tax and PAYE. Must use PAYE for directors and other employees. (Partnerships and sole traders must also operate PAYE system if they are directly employing anyone else.)

Corporation Tax is 19% for limited companies with profits less than £50K (2023-24). For companies with profits more than £250,000 the rate is 25%. There’s a sliding scale between £50K and £250K.

Find out more:
National Insurance Helpline – 0300 200 3500 (Weekdays only, 8am-5pm) www.gov.uk/personal-tax/national-insurance
www.gov.uk/claim-national-insurance-refund – if you think you’re owed an NI refund
Income Tax Helpline – 0300 200 3300 (Weekdays 8am-6pm) | See full list of ways to contact HMRC
www.gov.uk/scottish-rate-income-tax
www.hmrc.gov.uk/rates – pretty straightforward list of rates and thresholds
www.taxationweb.co.uk/ | www.freelanceuk.com/ – support for creative freelancers
www.litrg.org.uk – Low Incomes Tax Reform Group – charity with very good site
Unions will normally give advice to their members about tax status.

Useful HMRC (tax office) numbers for production freelancers:
– Freelance status,‘Lorimer Letters’/LP10 – 0300 123 2326 (option 1)
– IR35 enquiries – 0300 123 2326 (option 2)

The Income Tax & NI Bathtub 2024-25 | Scotland only

Note: Since 2017 Scotland has had different income tax rates and thresholds from the rest of the UK.

Posted on 29 January 2000