Self-employed persons
Outlining their liability, how and when their contributions must be paid and the benefits they may claim.
Contents
Self-employed persons - where YOU fit in
Self-employed persons not liable to pay contributions
How and when must I pay?
How much do I pay?
How do I apply to pay contributions based on my earnings?
Dividends
What if my earned income is re-assessed?
What happens if I set up a new business?
Suppose I do more than one job?
What happens if I am sick, or unable to work?
What must I do if I stop being self-employed?
What benefits am I entitled to?
Appendix
Lower earnings limit
For further information.
Self-employed persons - where YOU fit in
Generally speaking the Social Insurance Scheme applies to all persons in Guernsey, Alderney, Herm and Jethou who are over school leaving age. There are three classes of Insured Persons, paying different rates of contribution.
The reason you pay contributions is to give yourself the protection of insurance. Your payments will then entitle you to claim benefits.
The classes are:-
Class 1 - Employed Persons
Most people who work for wages or a salary under a contract of service are in this class.
Class 2 - Self-Employed Persons
Those people who are in business for themselves and other people who are working for gain but not under the control of an employer.
Class 3 - Non Employed Persons
All insured persons who are not employed or self employed.
This leaflet is only concerned with Self Employed Persons and their liability to pay Class 2 contributions.
Self-employed persons not liable to pay contributions
You do not have to pay a Class 2 contribution for any week during the whole of which you are:
- over 65 years of age - but specialist health and long term care contributions are payable.
- out of the Island for a period of 13 weeks or more - unless you are a share fisherman working on a Guernsey registered fishing boat.
- receiving certain benefits or credits from the Social Security Department.
- a labour only contractor in the building and construction industry (who is treated as an employed person) (See leaflet 59).
NOTE: If you have just arrived in the island, there are special rules which will affect your liability to pay contributions. Please contact the Social Security Department for further details.
Everyone who is liable to pay Class 2 contributions must contact the Social Security Department and obtain a Class 2 contribution card or complete a Direct Debit mandate.
The card which covers a complete quarter of a year lists each of the thirteen weeks, giving the week number along with the starting and finishing dates of each week. The card also shows the value of the weekly contribution and the total amount due for the quarter.
The card and the total amount due for the quarter must be returned to the offices within 15 days after the end of the quarter.
Shortly before you are due to return the contribution card for one quarter you will be sent a new card for the next quarter.
If you decide to pay by Direct Debit you will not be issued with a card. Instead, once you've signed a Direct Debit instruction, payment of contributions will be arranged between us and your bank or building society. You will be able to choose between quarterly or monthly payments which will be on the fifteenth day of the month following the quarter (or fifteenth day of the month if you have chosen to pay monthly).
You will always be notified in advance of the amount to be debited from your account and when this will happen. You will always be able to cancel a Direct Debit at any time.
In addition to making payments by cheque or Direct Debit, payments can also be made using the following Debit or Credit Cards in the office or over the telephone.
Maestro, Mastercard or Visa.
Pay by debit/credit cards be telephoning 732502 or log on to www.gov.gg
The maximum rate of contribution payable by a self employed person is calculated by taking 1/52 of the annual upper earnings limit and multiplying it by the percentage rate set for the year. (See leaflet 50 for the current annual upper earnings limit and the percentage rate).
If you expect to earn less than the annual upper earnings limit you can apply to have your rate of contribution based on your earnings rather than paying at the maximum rate. In this case your rate is calculated by taking 1/52 of your earned income as assessed by the Income Tax Department in the previous year of charge (see appendix) and multiplying it by the percentage rate set for the current year.
How do I apply to pay contributions based on my earnings?
Simply fill in an application form obtainable from the Social Security Department or the Alderney States Office.
The form contains an authorisation to the Administrator of Income Tax to disclose to the Administrator of the Social Security Department the amount of your earned income from self employment in the relevant Year of Charge. You will be issued annually with a notification showing your earned income and the weekly rate of contribution for the year.
Self-employed contributions must be paid within fifteen days after the end of the quarter. If, however, your assessable earnings are not available from Income Tax we will estimate a figure. This figure will be based upon your previous year's assessment and increased by a percentage to be decided by the Department each year. A refund or account will be issued when your actual weekly liability is established.
Where Income Tax are unable to provide us with details of your earnings we may use an estimated figure, uplifted from the previous contribution year. You are advised to submit your quarterly returns as early as possible so that the information needed to accurately assess your rate of contribution is available in good time.
Dividends made to a person from a company for which the person also derives earned income are included as part of the person’s earnings when calculating the contribution rate.
What if my earned income is re-assessed?
If your tax assessment for a Year of Charge is revised with the result that your earned income for that year is changed, the Social Security Department will send you a notification of how this affects your contribution payments. If your revised income figure is less than the original you will be entitled to a refund of overpaid contributions, but if the figure is more than the original you will be liable to make up the difference.
What happens if I set up a new business?
In this case, there is likely to be a delay before income from your new business can be included in the Income Tax assessments which will be used to determine the rate of your earnings related Class 2 contributions. The Social Security Department will therefore use estimates of your income for up to the first three years of self employment.
Your contribution rate will be revised as soon as your actual earned income has been established - and if your earned income as assessed by the Income Tax Department exceeds the estimate of your earned income you will be required to make up the amount of contributions underpaid. On the other hand, you will receive a refund if your actual earned income is less than your estimate.
Suppose I do more than one job?
If you are both employed and self-employed you must pay a Class 2 self-employed contribution as well as your Class 1 contribution as an employed person. This does not apply if your self-employed earnings are less than the annual lower earnings limit.
You must continue to pay your self-employed contributions either quarterly by card or by Direct Debit.
Your combined earnings from both your employment and your self-employment will be assessed up to the annual upper earnings limit. If your employment increases your earnings over this limit you will be refunded annually any Class 2 contributions you have overpaid.
For more information on employment see leaflet no. 40.
What happens if I am sick, or unable to work?
You are not liable to pay Class 2 contributions for any contribution week during which you are incapable of work for four or more days (excluding Sunday) and you are:
- receiving sickness benefit, invalidity benefit or industrial injury benefit; or
- entitled to receive an incapacity credit.
In the same way a woman receiving maternity allowance is not liable to pay Class 2 contributions but will receive a 'credit' for each week covered by the benefit.
Anyone receiving 'credits' should delete the relevant week shown on the contribution card and reduce their quarterly payment accordingly.
What must I do if I stop being self-employed?
If, for any reason, you stop being self employed, you should call at the Social Security Department or the Alderney States Office, so that your classification can be amended accordingly.
What benefits am I entitled to?
As a self employed person you are entitled to the following benefits, subject to having fulfilled the appropriate contribution conditions.
- Sickness benefit
- Invalidity benefit
- Industrial injury benefit
- Industrial medical benefit
- Industrial disablement benefit
- Old age pension
- Bereavement benefit
- Death grant
- Maternity benefit
- Travelling allowance grant
Leaflets and further information about all these benefits are available at the Social Security Department, and the Alderney States Office.
Entitlement to benefits under the Health Benefit Grant, Pharmaceutical and Specialist Health and Long Term Care Schemes is detailed in Leaflets 2, PS2 and HB2 and LTCI.
Earned Income:-
This is the amount of income you earned from your self-employment and which is included in your assessable income for tax purposes, in the relevant year of charge.
Income Tax accepts accounts for a period of up to 18 months when a business first commences. If an income assessment is for a period of more than 12 months, it will be apportioned to reflect only 12 months earned income.
Sometimes, an assessment will not be produced in respect of the year of charge relating to the first part year of trading. Again, in these circumstances, the first income tax assessment produced in respect of the business will be apportioned to reflect this part year of trading in order to calculate your contribution rate.
Rules applied to first 3 years of business up to 31 December 2009:-
Financial Year Ending | Income Tax Year of Charge | Contribution Year 1 Jan-31 Dec |
2010 | 2010 | 2010 |
If no assessment then 2011 (pro rata) | ||
2011 | 2011 | 2011 |
2011 | 2011 | 2012 |
Other than the people starting up a new business (where the rules set out in the previous table will apply), we use income from 2 years previous to establish your rate of contribution for the current year.
Financial Year Ending | Income Tax Year of Charge | Contribution Year 1 Jan-31 Dec |
2008 | 2008 | 2010 |
2009 | 2009 | 2011 |
2010 | 2010 | 2012 |
If you are unsure of the meaning of any particular point in this leaflet, please phone or call at the Social Security Department, Guernsey, or the States Office, Alderney where staff will be pleased to help you and from where copies of any other leaflet mentioned may be obtained.
If you are writing to the Social Security Department please quote your social security number if known
Social Security Department
Edward T. Wheadon House
Le Truchot
St Peter Port
Guernsey
GY1 3WH