Registering as self-employed in order to make voluntary class 2 NI contributions

[MyNameIsUrl]

My wife needs a couple of extra years NI contributions; she registered as self-employed in the tax year just finished to facilitate that. Now the tax year has ended we’re getting cold feet as it feels a bit iffy to us. Any views, given the circumstances outlined below, would be very welcome.

We’ve already paid around £750 for one of the missing years, and were hoping to add the second, 2018/19, for around £150. We’ve always been scrupulous with our tax returns, and this ‘self-employment’ feels to be playing the system – I would hate to trigger some sort of investigation.

My wife has a craft hobby, and registered as self employed for 2018/19. She made four sales in the year, total value under £200. Total materials expenditure was considerably more than that, as the ‘hobby’ element has continued alongside the ‘employment’ element. We could sensibly apportion the expenditure to arrive at a figure of a tiny profit.

With self-employment, accounts are ‘required by law’. What would I need to do to turn a list of some 20 transactions into a set of accounts?

Does it seem reasonable to claim self-employment on the basis of the above, or is this ‘pushing it’ with HMRC? Would it just be safer to stump up the £750 instead?

[tjh290633]

You don't have to make a profit if you are self employed. If she has other income on which she pays tax, any loss can be offset against it.

TJH

[modellingman]

With self-employment, accounts are ‘required by law’. What would I need to do to turn a list of some 20 transactions into a set of accounts?

You are not required to produce a formal set of accounts. What you are required to do is to determine (and declare) the profits (or losses) that arise from the self-employment, ie the gross income received from self-employment less the allowable expenses incurred in generating that income. You are also required to keep the records that you used to determine those profits (or losses). Strictly, declaring self-employment profits is only necessary if the income is above the threshold (gross income of £1000, if memory serves).

To determine the numbers that you will need to derive from your list of transactions, look at the self-assessment pages and accompanying notes for self-employment on HMRC's webpages.

For a business of the size you describe a number of simplifications are available including: use of the cash-basis for determining when income and expenses arise; use of flat-rates for certain expenses (such as vehicle mileage); and, declaration of an allowable expense total rather than itemising expenses into the 10 or so categories shown on the self-assessment form.

You might also want to have at look on the Taxes board at this thread viewtopic.php?f=49&t=17126

[MyNameIsUrl]

You don't have to make a profit if you are self employed. If she has other income on which she pays tax, any loss can be offset against it.

Useful to know thanks, so if I do go ahead, I will apportion costs in such a way as to ensure a small profit; the alternative of showing a loss, offsetting tax on other income, would compound the feeling of 'playing the system' which is what we are so nervous about.

[gadgetmind]

My wife has been paying Class 2 for years on just a few £100 of income and she gets the extra year towards state pension with no questions asked. Bare in mind that ex pats living overseas also do this to maintain UK pension rights!

This year we got a £10k windfall as she sold rights to some old intellectual property that I gifted to her, so she'll have to pay a sliver of Class 4 too. However, we stuck 80% of it into her SIPP so we get the tax relief in there even though most of it was tax free.