Class 2 NIC Voluntary Payment: What if you skip?

2 years of low income - what happens if you don't pay Class 2 NIC voluntarily?

Didn't find your answer?

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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By Matrix
15th May 2018 20:32

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.

Thanks (1)
Replying to Matrix:
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By Victor01
15th May 2018 20:52

Thank you for your reply, but I don’t understand. As I explained, we’ve already checked his record. The missing year is 2016-17 only. Plus the current assessment 2017-18.

(1) Why would he ‘need the missing years’? And (2) why should he pay voluntarily?

Thanks again in advance.

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Replying to Victor01:
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By Matrix
15th May 2018 21:07

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.

Thanks (3)
Replying to Matrix:
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By Victor01
16th May 2018 05:03

Thank you for your help, I greatly appreciate it. But for him, paying £140+ is not cheap, in fact it's huge... if 35 years is all he needs, he'll be well-qualified to state pension. So perhaps there's no disadvantage in missing 2 years of NIC...

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By Victor01
16th May 2018 09:33

I got the answer myself... In case if anyone has the same question. The number you should call is the State Pension Forecast Team 0800 731 0175.

You need around 30-35 years of NIC payments to be qualified for the maximum state pension. This particular man's case (my client) is 31 years.

He's made 27 years of contributions already, so if he makes a profit in the next 4 years and make his NIC's, he'll receive the maximum state pension anyway. (And he's confident he will.)

So he should NOT make his Class 2 NIC voluntarily payment for 2016-17 nor 2017-18. The payment would be a waste.

Thanks!

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By zebaa
16th May 2018 10:03

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.

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Replying to zebaa:
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By Victor01
16th May 2018 10:37

Wow, that sounds complicated...

He's been paying NIC via PAYE for something like 27 years, but defined pension scheme, he was paying 6-7 years. I'd better check how it affects (do you know where to check?)

Thank you so much for your advice again, I'm grateful.

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By Jholm
16th May 2018 11:04

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.

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Replying to Jholm:
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By Victor01
16th May 2018 11:30

You can check all the history. We already have.

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By pauljohnston
21st May 2018 13:49

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.

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Morph
By kevinringer
29th May 2018 13:34

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.

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Replying to kevinringer:
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By Victor01
29th May 2018 14:07

That's great to know, thank you so much!

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