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ACCA Strategic Professional · Advanced Taxation (UK) · Income tax: income from employment

Mira works for Delta Ltd and earns a salary of £60,000. Delta Ltd could instead pay her through a self-employed arrangement for the same £60,000 fee. Considering only the national insurance position under the rates in the tax tables, which statement is correct?

If Mira is an employee, Delta Ltd pays 15% employer Class 1 above £5,000 and Mira pays employee Class 1. If she is self-employed, Delta Ltd pays no employer NIC and Mira pays Class 4 on her profits, so the employer saves cost.

  1. AAs an employee, Delta Ltd pays Class 1 employer contributions of 15% on earnings above £5,000 and Mira pays Class 1 employee contributions; if self-employed, Delta Ltd pays no employer NIC and Mira pays Class 4Correct
  2. BDelta Ltd pays Class 1A at 15% on the whole £60,000 salary if Mira is an employee
  3. CAs a self-employed person Mira pays no national insurance at all on profits above £12,570
  4. DEmployer Class 1 applies at 15% from the first £1 of earnings in the employment case

Explanation

Employment triggers employer Class 1 at 15% above £5,000 (£8,250 here) and employee Class 1 for Mira. Self-employment removes employer NIC; Mira pays Class 4 on profits instead. Class 1A applies to benefits, not salary, and Class 4 is still charged on self-employed profits.

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