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Capping NIC through the SA calc

Capping NIC through the SA calc

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This was a first for me, but I expect it heralds the first of a flood.

Time was, when you would file an SA return with a degree of certainty that the figure filed would correspond with the amount that gets posted to the SA record.  Included in these returns would be those for certain individuals who had both employment and self employment sources, with sufficient income from all sources such that in isolation the calculations of Class 1, 2 and 4 would exceed the combined annual total liability.  In those circumstances you could either apply in advance for deferral of Class 2 & 4, that would be separately assessed, or you could apply in arrears to the NI office for an NIC assessment for the year that would give rise to a refund.  Either way, the SA return was fixed and certain.

I have just come across a case where there was no application for deferral, and we were gearing up to applying for the NI to be assessed and refunded, only to get preempted by an amendment to the SA return under S.9ZB(1) TMA 1970 showing a reduced class 4 NIC charge (with an explanation in principle but no supporting calculation).

Irritatingly, our tax software (Sage) has a box for entering primary class 1 NIC paid against employment income sources, but it makes no use of these figures in working out the SA calc.  The NI assessment is not trivial to do manually, and if you don't have the figures to hand when completing the SA return, HMRC will helpfully provide you with pay and tax and BIK on enquiry, but not the NIC

Anyone else getting these?  If not, consider this a heads up.  You likely will presently.

With kind regards

Clint Westwood

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By Tim Vane
24th Nov 2016 08:48

Upgrade to better software. Most software will reduce the c4 NIC charge as needed in the comp.

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Replying to Tim Vane:
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By nogammonsinanundoubledgame
24th Nov 2016 10:46

Tim Vane wrote:

Upgrade to better software. Most software will reduce the c4 NIC charge as needed in the comp.

Sadly I am not in the procurement department. But it is helpful in negotiations to know that other software copes with this OK
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Replying to Tim Vane:
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By nogammonsinanundoubledgame
24th Nov 2016 10:56

I think I may have done Sage a disservice above. It looks like it has introduced a facility to cope with this. I need to research it more.

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By Paul D Utherone
24th Nov 2016 08:55

Yes I was aware of this. CCHPT asks for details of Class 1 earnings liable between PT & UAP and between UAP & UEL (NIC boxes c & d on the P60)

HMRC Info for your return gives you the total of those two.

If Sage shows you the full HMRC calculation (not just the SA302) then the Class 1 adjustment is done at Stage 16 between c16.19 & c16.33

For all of my clients affected the HMRC account is up to date for the Class 1 detail - and I believe HMRC reckoned all records had been updated by Oct 2016.

I have a spreadsheet calculator built a few years back that does & confirms the calculation.

Surely this adjustment to the comp by HMRC is a good thing, saving the need to have to overpay at 31/1 and then have to go back and reclaim the excess (since the deferment option was removed)?

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Replying to Paul D Utherone:
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By nogammonsinanundoubledgame
24th Nov 2016 10:35

Paul D Utherone wrote:

Surely this adjustment to the comp by HMRC is a good thing, saving the need to have to overpay at 31/1 and then have to go back and reclaim the excess (since the deferment option was removed)?


Yes I agree that it is a good thing, the only downside being our current inability to advise clients of what they are going to have to pay under SA. This does seem to be something new, however, because HMRC never previously would adjust the 4NIC and for the same reason I doubt that they would have accepted without adjustment a 2014-15 SA return with the 4NIC pre-reduced by the filing agent. Or would they?

With kind regards

Clint Westwood

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Replying to nogammonsinanundoubledgame:
By Paul D Utherone
24th Nov 2016 12:29

Deferment was withdrawn and the NIC adjustment incorporated in the computation from 15-16.

With HMRC software it happens automatically, based on the Class 1 income details in "information to help complete your return"

For third party software you have to make a note of the Class 1 income (which you can pick up from the HMRC client record and confirm where you have the P60). The software will then make the adjustment for you.

Not sure whether if you have P60 details that you include in 3rd party software, but there is nothing on the HMRC client account, whether HMRC will adjust (as they do for Class 2) but I suspect so. There is an xml field in the 3PS submission file for Class 1 income so presumably the Gateway should let the return through, but HMRC system might then amend.

So you should be able to advise the correct figure if everything is entered up in the software, which then makes the adjustment

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By Mister E
24th Nov 2016 08:58

Yes (for class 2 NIC manly) and no - as our software does calculate the Class 4 NIC.

I use CCH and with that if you enter the Class 1 earnings it will calculate the Class 4 NIC correctly, in that it will restrict the amount due at 9%. Alas it does not do the same for Class 2 NIC.

So we are finding the liability on the HMRC record matching our calculations. In theory the days of paying full Class 4 and getting a refund have passed, you should pay the right amount via SA.

We are finding far more issues with Class 2 NIC. Often a client is not registered for Class 2 NIC (in some cases been trading a number of years!) . We put the £145.60 C2NIC on TR and HMRC amend it. Now correct me if I am wrong but is this not "Self Assessment" and so they should accept our calculation and then query.
Although I suppose strictly they are entitled to amend it and we are entitled to dispute their 'correction' within 30 days.

The issue we are also finding is that every time we call HMRC to get it corrected you end up with a different way to fix it. Some will do it over the phone and register the client for Class 2 NIC, some will insist the client registers for Class 2 NIC online (resulting in a bill for unpaid C2NIC) and some state we have to talk to the NIC office; who then either correct there and then, or insist the client registers. It's a farce.

I appreciate they are separate systems (leave aside that in itself is daft) but can they not just match up the client Class 2 NIC paid to the NIC record rather than having to register separately! Same happens with cessations (so I am told), if self employment ceased but NIC not told separately HMRC demand full Class 2 NIC despite the TR showing they have ceased.
All for £145.60.. yet if you don't get the client on the right footing, in x years when they ask why they don't have a full state pension we could be liable for failure to correct it and that could prove costly! Actually I may start a mis selling campaign already... make a mint! ;)

The quicker they align tax/NIC the better...
I'll calm down now...

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Replying to Mister E:
By Alastair Johnston
25th Nov 2016 11:43

We've had a fair few of these as well. HMRC can only collect 6 years' Class 2 but where appropriate we advise clients to get a pension estimate from HMRC so we can work out if it would be beneficial to pay more back years, as it may be the only way to get to a full State Pension.

But it is pathetic that the tax office has been taking Class 4 from clients while the NIC office has not been collecting the Class 2. They clearly don't speak to each other.

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RedFive
By RedFive
24th Nov 2016 13:44

Class 2 is definitely abolished from 2018 anyway.

Confirmed in the Autumn statement yesterday.

"Class 2 NICs – As announced at Budget 2016, Class 2 NICs will be abolished from April 2018, simplifying National Insurance for the self-employed. The Autumn Statement confirms that, following the abolition of Class 2 NICs, self-employed contributory benefit entitlement will be accessed through Class 3 and Class 4 NICs. All self-employed women will continue to be able to access the standard rate of Maternity Allowance. Self-employed people with profits below the Small Profits Limit will be able to access Contributory Employment and Support Allowance through Class 3 NICs. There will be provision to support self-employed individuals with low profits during the transition."

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Replying to RedFive:
By SteLacca
30th Nov 2016 16:54

RedFive wrote:

Class 2 is definitely abolished from 2018 anyway.


Something I highlighted to a manager on the ADL today when I was having a conversation about removal of Class 2 NIC and she said she was going to escalate up the line to try and do things differently in the future. My response, "What's the point, it's being abolished, they won't do anything".
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By Gideon
30th Nov 2016 14:11

CCH software has the boxes and does do the calculation for you so we haven't had any corrections to the class 4 adjustment, but we've had far too many to the class 2, we enter it, they deduct it, we call, they say the client never registered. Might be true for some but not all, and surely HMRC cross checked with NICO for class 2 back in the day.
With CCH they are boxes ready for auto population, but we have to override.
In the absence of the actual P60 getting the figs form HMRC is a nightmare, they have to drill into the RTI and only have the box number not the description on most P60s.

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