cigma accounting guide to carer's credit; london accountant; wimbledon accountant; farringdon accountant

A Guide to Carer’s Credit from CIGMA Accounting

Unlocking Financial Support: A Guide to Carer's Credit

Are you tirelessly caring for someone for at least 20 hours a week? If so, you might be eligible for Carer’s Credit, a National Insurance credit designed to bridge gaps in your National Insurance record. This credit not only supports your caregiving responsibilities but also plays a crucial role in enhancing your State Pension.

What is carer's credit?

Carer’s Credit is a valuable resource for those dedicating a substantial amount of time to care. It’s a National Insurance credit that aids in filling gaps in your National Insurance record, ensuring your State Pension is based on a comprehensive record.

Notably, eligibility is not impacted by your income, savings, or investments, making it a versatile financial support option.

If you qualify for Carer’s Credit, you receive credits that contribute to filling gaps in your National Insurance record. This means you can fulfill caregiving duties without compromising your eligibility for the State Pension.

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Eligibility Criteria for carer's credit

To be eligible for Carer’s Credit, you must:

  • Be aged 16 or over
  • Be under State Pension age
  • Care for one or more people for at least 20 hours a week

The person you’re caring for must receive one of the following benefits:

  • Disability Living Allowance care component at the middle or highest rate
  • Attendance Allowance
  • Constant Attendance Allowance
  • Personal Independence Payment daily living part
  • Armed Forces Independence Payment
  • Child Disability Payment (CDP) care component at the middle or highest rate
  • Adult Disability Payment daily living component at the standard or enhanced rate

Even if the person you care for doesn’t receive these benefits, you may still be eligible. In such cases, a signed ‘Care Certificate’ from a health or social care professional can demonstrate the appropriateness of your caregiving level.

Carers not qualifying for Carer’s Allowance may still be eligible for Carer’s Credit.

Breaks in Caring and Eligibility

Carer’s Credit remains accessible even during breaks in caregiving, allowing for interruptions of up to 12 weeks. Whether it’s a short holiday, hospitalization of the cared-for person, or your own hospital stay, you’ll still receive Carer’s Credit during these periods.

If your break in caring extends beyond 12 weeks, it’s essential to inform the Carer’s Allowance Unit promptly.

 

You do not need to apply for Carer’s Credit if you:

  • Get Carer’s Allowance – credits are automatic
  • Receive Child Benefit for a child under 12 – credits are automatic
  • Are a foster carer – apply for National Insurance credits instead

Need Assistance from an Accountant?

CIGMA Accounting takes pride in offering holistic financial advice, so you can take of both your business and those close to you. Become a CIGMA partner today and find out how we secure your family’s financial future.

Reach out to us by completing this form and one of our staff members will get in touch within one business day. 


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national insurance contributions for self-employed; wimbledon accountant

Class 2 and Class 4 NICs: Quick Reference for Self-Employed Individuals in the UK

How to claim work from home tax relief in the UK

When you’re self-employed in the UK, understanding your National Insurance contributions (NICs) is critical for both compliance and for securing your future benefits such as the State Pension. For the 2023-24 tax year, the HMRC highlights two primary classes of NICs that self-employed individuals need to be familiar with: Class 2 NICs and Class 4 NICs. Here’s a quick reference of what these contributions mean for you.

What are Class 2 NICs?

Class 2 National Insurance Contributions are payable by almost all self-employed individuals. However, if you earn under the Small Profits Threshold (SPT), which is currently set at £6,725 for the 2023-24 tax year, you are exempt from these payments.

Key Features:

  • Rate: The flat weekly rate for Class 2 NICs is £3.45.
  • Benefits: Payments count towards the basic State Pension, employment and support allowance, maternity allowance, and bereavement benefits.

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What are Class 4 NICs?

If you’re self-employed and your annual profits exceed £12,570, you’re also required to pay Class 4 NICs in addition to Class 2 NICs.

Key Features:

  • Rates: Class 4 NIC rates for 2023-24 are 9% on chargeable profits between £12,570 and £50,270. An additional 2% is payable on any profits over £50,270.

are you exempt?

There are a few professions where Class 2 NICs are not applicable. These include:

  • Examiners, moderators, invigilators, and people who set exam questions.
  • People who run businesses involving land or property.
  • Ministers of religion who do not receive a salary or stipend.
  • Individuals making investments for themselves or others, but not as a business and without a fee or commission.

If you belong to any of these categories, it may be beneficial for you to get a State Pension forecast and consider making voluntary Class 2 NICs to make up for missing years.

Next steps

  1. Calculate Your Earnings:
    Verify if you cross the Small Profits Threshold or the £12,570 limit for Class 4 NICs.
  2. Check Exemptions:
    Ensure that you don’t fall under any of the categories that are exempt from Class 2 NICs.
  3. State Pension Forecast:
    It’s wise to check your State Pension forecast to understand how your NICs impact your future benefits.
  4. Consult an Expert:
    Given the intricacies, it might be beneficial to consult with a tax advisor or accounting professional to help you navigate the NIC landscape.

Understanding your National Insurance contributions is vital for financial planning and fulfilling your tax obligations. If you have more questions about how these classes apply to your situation, feel free to get in touch with us.


Wimbledon Accountant

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Farringdon Accountant

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National Insurance credits

QUICK READS: NATIONAL INSURANCE CREDITS

At CIGMA Accounting, we understand the complexity of the UK’s National Insurance system and the value of optimising your benefits. This article explains National Insurance credits, a crucial element that can help build your National Insurance record and ultimately increase the entitlements you receive, including the State Pension.

National Insurance credits provide an invaluable lifeline for those not currently working, and thus, not contributing to their National Insurance. These credits can fill gaps in your National Insurance record, and we see it especially relevant to those who are job-seeking, on sick leave, maternity, paternity or adoption leave, caring for someone, or serving on a jury.

You can click here to read our full guide to UK National Insurance.

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Our firm often receives inquiries on how to apply for National Insurance credits. The process varies depending on the specific circumstances; sometimes they are applied automatically, while in other cases, an application is necessary. To better understand your situation, we recommend seeking professional advice.

Two primary types of National Insurance credits exist – Class 1 and Class 3. Class 3 credits contribute towards your State Pension and some bereavement benefits. Class 1 credits not only cater to the same benefits as Class 3 but also offer additional ones like Jobseeker’s Allowance.

However, it’s important to note that National Insurance credits usually don’t apply to self-employed individuals who pay Class 2 National Insurance or older married women who opted to pay a reduced rate of National Insurance before April 1977.

Need Assistance from an Accountant?

At CIGMA Accounting, we make it our mission to guide you through these complexities, helping you make informed decisions about your financial future. If you have more questions about National Insurance credits or other financial matters, reach out to us and our sales team will be in touch for a free consultation!


Wimbledon Accountant

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the best way to pay yourself as a company director in the UK; london accountant; dividends taxation; income tax

How to best pay yourself as a UK company director

As a new company director in the UK, you are likely wondering how to best pay yourself through your company. You have several options for transferring company profits into personal income, including salaries, dividends, and investments. This post outlines the pros and cons of each, and gives you the information you will need to make your income as tax efficient as possible.

 

How can a company director pay themselves?

Company directors are considered employees of the company and so take a salary which is subject to income tax. Directors can also pay themselves using dividends, which are a common method of distributing profits to shareholders (which includes directors).

Salaries and dividends are subject to different tax rates, tax-free allowances, and National Insurance obligations, which we break down below.

 

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What is the difference between salary and dividends?

Dividends are a way for companies to distribute a portion of their profits to their shareholders. As a director, you can choose to pay yourself through dividends instead of a salary. Dividends are typically paid out after the company has paid its taxes and can be a tax-efficient way to receive income.

However, there are some basic rules to follow. Firstly, your company must have sufficient profits to pay dividends, and you should keep records of these profits. Secondly, dividends must be declared and approved by the company’s shareholders. Lastly, dividends cannot be paid if the company is insolvent or if the payment would render it insolvent.

When it comes to tax purposes, it’s important to find the right balance. Dividends are subject to lower tax rates than salaries. You also do not need to pay National Insurance Contributions on dividend income, which you would have to do so on any salary income.

Lastly, as is also the case with personal income tax, a certain amount of dividends you receive is tax-free.

You can read our full guide to dividends to learn more.

 

What is the most efficient way for a company director to pay themselves?

From the explanation above, it should be clear that paying yourself efficiently as a company director involves balancing tax-free personal allowances and differing tax obligations.

The table below should be very helpful in outlining these differences between salary and dividends.

company director pay; dividends tax; income tax; london accountant

At the most basic level, directors clearly want to use all of their available tax-free personal allowance. That means taking at least £12,570 as salary and £1,000 as dividends.

It is important to note that once you reach the Higher Rate income bracket, your personal allowance amount begins to decrease. And in the Additional Rate bracket, there is zero tax-free personal allowance.

An important factor that is left out of the above table is the added cost of National Insurance Contributions on salary income. National Insurance Contributions must be paid both by the employee and employer. The basic NIC rate for employees is currently 12% of earnings, and an additional 13.8% of earnings to be paid by the employer. These are basic figures, see our guide to National Insurance for a detailed understanding.

As a company director, you will effectively bear both of these costs, making salary income even less appealing when compared to dividends. A common strategy is to take enough of a salary that the director qualifies for state benefits such as the State Pension, but that does not incur NIC payments.

Under most circumstances, dividends will be more tax efficient than salary income, though how easy it is to distribute dividends will depend on the structure of your company and its shareholders.

Using investments as tax-efficient income sources

It is also important to take advantage of any other tax free allowances that HMRC makes available. An example of this would be transferring company profits into investments, rather than personal salary. In that way, you could take advantage of the tax-free capital gains allowance of £6,000.

Trusts are another way of accomplishing this, and which have their own tax-free capital gains allowance of £3,000.

It is also essential to consider how increased income may push you into a new tax band, and create much higher tax liability. For example, the dividend tax rate jumps from 8.75% in the first income bracket to 33,75% in the second.

As such, it may be more profitable in the long term to reinvest money into business (tax-free), or into other investments, rather than taking extra personal income that pushes you into a higher tax band.

 

Need Assistance from an Accountant?

Our CIMA-certified Management Accountants specialise in working with businesses to form companies, create financial strategies and take care of regulation compliance.

We’d be more than happy to help you with your accounting needs in London, or anywhere else in the UK!

Reach out to us by completing this form and one of our staff members will get in touch within one business day. 


Wimbledon Accountant

165-167 The Broadway

Wimbledon

London

SW19 1NE

Farringdon Accountant

127 Farringdon Road

Farringdon

London

EC1R 3DA