I have a client who has been self employed for many years (since about 1998), but has not paid any class 2 contributions and earns above the exception amount (circa £8000). He is also employed but does not pay the maximum class 1 through his employment. Is there any way to let HMRC (even though they know as SE pages shown on his tax return) know that he is self employed but opt not to pay the contributions? Or will the class 2 be due from the date he started s/e?
Thanks
Anon Ymous
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Replies (10)
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Luck of the draw..
I have had clients in the past who have just submitted a direct debit form to start paying Class 2 NIC and have not been made to pay prior years arrears.
However, I think the Revenue are more 'on the ball' these days and this is now a rarity.
Dean
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Time Barred
HMRC will certainly ask for contributions back to 1998. Bear in mind that those before 1999/00 will be time barred and they will not try to collect if your client objects to paying.
NI is not a tax!
so there is a 6 months limit non?
the 6 yrear limit is extended if there has been any prior communication to 6 years prior to that.
surprisingly there are benefits to C2 and you may wsih to make voluntary contributions, get a pension statement from your tax office
Jeremiah
Just ask the NIC office about it.
I have seen quite a few instances of them asking for contributions prior to the 6 year limit. When objections are raised they just amend the demand to reflect in date years.
Link between tax & NI departments
There is a link between the tax and NI departments. I have clients who were due tax refunds for 2003/2004 but these went straight to the NI department to pay arrears of class 2 contributions!
Ah-ha!
As pointed out below there are class 2 benefits, but as they all duplicate class 1 benefits they will make no difference to the taxpayer's benefits position.
The 6 year point is an interesting one - it seems that they can demand amounts outside of the 6 year period that you would expect, but they might not be able, legally, to recover earlier periods if push came to shove. Hence their relunctance evidenced below to push the issue. Take care if you get demands for eight years and decide only pay 6 - simply paying 6 years worth they will offset the amount collected against the earliest liabilities (they are entitled to this under normal commercial law principles, which will leave 2 years outstanding which will be the most recent and so enforceable.
Under commercial law the debtor can specify which sums a payment is to be allocated against so you must specify the most recent 6 years so that the years outstanding are more than 6 years ago.
Not registered for C2NICs
I’ve come across this problem several times. You have to treat IR Newcastle as if they were nothing to do with the “regular” IR – my advice is “dumb it down”. This is what I do:
1. Fill in CWF1 (even though taxpayer is already registered as SE with IR).
2. Fill in Direct Debit form (CA5601). Tick the box saying you DO NOT want arrears collected with the first payment. This is because IR NICO invariable calculates the arrears incorrectly – if they collect the arrears by DD then it will be more difficult for you to recover any overpayment.
3. Fill in 64-8 (even though you are already registered as agent – NICO won’t respond to you unless have a 64-8, as you need to get signatures on the CWF1 and DD form its not much extra work to get another 64-8 filled in).
4. Send all 3 forms to Newcastle along with a covering letter stating UTR. There’s a new team handling these, the address is:
Inland Revenue
CAA Team (Central Agent Authorisation Team)
Longbenton
Newcastle upon Tyne
NE98 1ZZ).
5. IR NICO will send demands etc straight to client, they won’t send anything to you, so warn client that only they will receive correspondence and they should forward it straight to you. If you haven’t received anything within 28 days then chase up client to see if they’ve had anything, if not, chase up IR NICO.
6. You client should only have to pay the last 6 years. Make sure this is all IR NICO charge.
7. IR NICO might charge £100 penalty, but in practise they waive this if the taxpayer has been completing SA returns and you quote a UTR.
This is a widespread problem. As the Inland Revenue handle C2NICs, clients assume you look after this for them, and many SE clients assume they don’t need to pay C2NICs because they already pay C4NICs. Do you cover this in your Letters of Engagements? I think this will be a bigger issue as the Revenue handle more and more matters eg Tax Credits, Child Benefit.
Not "Joined up" Government
I am sure many of us have had clients, especially clients who previously did their own tax returns, in this situation.
The annoying thing is that they have been conscientiously telling the Inland Revenue about their self-employment, via the self-employment pages, but are now faced with huge back-dated bills. The Inland Revenue merged with NICO some time ago, surely they should put in place a link between the SA return & class 2 collection?
Be careful to :
- check for any tax years where the maximum NI was paid as Class 1/Class 4, where class 2 can be cancelled.
- consider putting in an application for the small earnings exception for 2005/06 if there is any chance that it will apply, (profits below £4,345). There are limits on the backdating of this.
Nigel -what time bar?
There is no time bar against Class 2 NI liabilties-unless you know of a specific one?
ps.21st June-there is no statute of limitations against the Crown.
class 2 NIC
Just had a similar case with a client of mine. She is a partner in a business and also has employment earnings. She had not paid any class 2 contibutions since year dot and has just had to pay £2500!! As far as I am aware unless exempt by age, low earnings or maximum contributions paid elsewhere re class 1 & 4 etc the liability to class 2 contributions stands!!