Please help! I've spent 1/2 day reading HMRC documents, Googled and couldn't get the definite answer/advice... I know it may be a basic question, what am I missing?
My client is 52. He's been employed all his life as a retail assistant, always been a basic taxpayer, paid NIC via PAYE.
Last year (2016-17) he became self-employed for the very first time (his own retail business) and made a loss of £5k. So he did not pay his NIC for the first time.
In 2017-18, his net profit was well-below the threshold (profit of £2k). So his Class 2 NIC payment is again, optional.
What happens if he doesn't pay voluntarily and make a non-payment gap for two years running? What's the disadvantage? He still has 15 years to his retirement due, and he pays personal pension contribution but not much (£2k a year or so).
Thanks in advance.
Replies (12)
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He should check his NI record and, if he needs the missing years which I expect he does at 52, he should pay voluntarily. For £145.60 a year, now £148ish then it is worth it.
He will need 35 years or so in total to qualify for full state pension by the time he retires (get him to check his record). If he thinks that he will make up the years by the time he reaches his retirement age then he doesn't need to pay voluntarily but it is quite cheap to buy the 2 years missed so I don't know why he wouldn't. If he doesn't then he would have to work for longer to get state pension or would not get full state pension.
Two points:
' ..if he makes a profit...' . His risk. As long as he won't regret it later.
Check if he has DB contributions in the years already counted. If he has this will reduce the state pension. In such a case it may be worthwhile paying the NI.
You can check your National Insurance record through a personal tax account, although I can't say how far it will go in your client's instance.
For me I would check what state pension he will get based on his current record. As others he suggested if any of the contributions were made when he has contracted out of serps then his eventual state pension will be less than expected.
Class 2 covers more than just state pension: see https://www.gov.uk/national-insurance/what-national-insurance-is-for. You're note entitled to ESA if you've not paid NICs for the last two tax years. Most of my clients who have paid their full 35 years still pay C2NICs to cover these other benefits.