Changes in paying Class 2 NICs

Class 2 NICs and Class 3 NICs - are the goalposts changing?

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In past years my clients with low earnings have been able to pay Class 2 NIC contributions and earned qualifying years towards state benefits, (most importantly State Pension).  As I understand it, by paying Class 2 NICs they have qualified for virtually the same range as benefits as anyone paying Class 1 NIC contributions.

Class 2 NICs are levied at a flat rate of just £2.80 per week.  This represents a bargain compared to voluntary Class 3 NICs which are levied at £14.10 per week.

Clients used to pay directly every thirteen weeks but, as you know, now HMRC has taken over the responsibility for their collection.

When submitting their 2015-2016 tax returns many of my clients have expressed their wish to pay HMRC the Class 2 NICs - £145.60 per annum -  to earn a qualifying year.

In some cases HMRC have now begun to write back to me suggesting that the liability for £145.60p need not be paid and have sent me their (HMRC's) alternative calculation, eliminating the Class 2 NIC liability.

My concern is that if my clients accept the HMRC amended calculation they will not earn a qualifying year towards State Pension.  Am I right to be worried, please?


Replies (6)

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By lionofludesch
31st Jan 2017 15:17

There are several threads on here about HMRC errors in recording whether Class 2 contributions are due. I replied to one only this morning.

Yeah - you're right - after 2018, folk who earn less than whatever the Class 4 threshold is by then will need to pay Class 3 contributions. There's some talk of transitional arrangements - but no hard detail.

At current rates, you'd get your £700ish Class 3 contributions back after around 3 years pension. If you don't make it - what will you care ? You'll be dead.

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By Paul D Utherone
31st Jan 2017 15:16

Presumably they're self employed with profits below the small earnings exception.

When preparing the return did you note that the wished to pay Class 2 voluntarily by checking the relevant box?

If that is what they want to do to protect benefits then write, or ring HMRC and point out that 'no the client elected to pay Class 2 voluntarily so would HMRC please adjust the computation back to that in the return' and keep plenty of evidence of this request against a later claim that the full pension is not due because the NI record is incomplete

Thanks (2)
Replying to Paul D Utherone:
By P2
31st Jan 2017 16:31

Dear Paul,

Thanks for that advice about keeping plenty of evidence.

Yes, in each case I ticked box 36 of page SES 2 of the client's tax return.

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Replying to P2:
By lionofludesch
31st Jan 2017 16:43

The problem, however, seems to be that HMRC don't have them registered as self employed.

As such, they would be ineligible to pay Class 2 so their status is what you have to change. Or cause to be changed.

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Replying to lionofludesch:
By Paul D Utherone
01st Feb 2017 12:35

The problem is that HMRC's 4 different computer systems are complete [***] (a technical term I believe) and barely fit for purpose.

I've seen cases of long established partners being shown not needing to pay C2NIC when they clearly do, initially showing C2NIC due and then mysteriously removing the requirement one day and putting it back a little later unprompted, and various shades in between.

Has anyone skimmed the MTD stuff released today? That's going to go swimmingly isn't it!?

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Replying to Paul D Utherone:
By lionofludesch
01st Feb 2017 12:47

Whilst accepting entirely what you say, it boils down to whether you want to make a point or resolve the issue.

Keep records if you wish - make sure they're handy for a dispute some time in the late 2050s (I won't be here by then).

Or give the HMRC NIC unit a call and get the record amended now.

Thanks (1)