Spring Statement - Class 2 voluntary contributions

If profits are below the Small Profits Threshold will class 2 contributions have to be paid?

Didn't find your answer?

The Spring Statement suggests that class 2 NI on profits between the Small Profits Threshold and the pro-rated Lower Profits Limit will no longer be payable from April 2022. I have read through the documents and can see no reference to the position where profits are below the SPT. It seems odd that those with profits below the SPT will have to continue paying contributions when those with higher profits will qualify for benefits at nil cost. Am I missing something?

Replies (19)

Please login or register to join the discussion.

avatar
By TomJP
24th Mar 2022 03:07

Concerned by this also. Access to voluntary Class 2 is extremely important for those earning below the SPT. Would appreciate any further information.

Thanks (0)
Quack
By Constantly Confused
24th Mar 2022 08:13

I came to ask something similar, the email HMRC sent me this morning says:

"from April 2022, self-employed individuals with profits between the Small Profits Threshold (SPT) and the Lower Profit Limit will not pay Class 2 NICs, while allowing individuals to be able to continue to build National Insurance credits"

Which to my not-yet-woken-up brain suggests if you have profits between those amounts you pay no Class 2 but are treated as if you did (as for employees paid in the magic range).

But the actual Spring Statement reads as if affected people will just not pay the Class 2 full stop, no mention of getting a credit. And none of the digests I have read so far seem to reference it at all.

Confused.

Thanks (0)
Replying to Constantly Confused:
By Duggimon
24th Mar 2022 10:18

The actual spring statement says "From April, self-employed individuals with profits between the Small Profits Threshold and Lower Profits Limit will not pay class 2 NICs, meaning lower-earning self-employed people can keep more of what they earn while continuing to build up National Insurance credits."

So it seems pretty clear that credits will be paid despite no Class 2. It is however silent on the position for those below the small profits threshold.

Thanks (0)
Replying to Duggimon:
Quack
By Constantly Confused
24th Mar 2022 11:24

Duggimon wrote:

The actual spring statement says "From April, self-employed individuals with profits between the Small Profits Threshold and Lower Profits Limit will not pay class 2 NICs, meaning lower-earning self-employed people can keep more of what they earn while continuing to build up National Insurance credits."

So it seems pretty clear that credits will be paid despite no Class 2. It is however silent on the position for those below the small profits threshold.

Yes as soon as my brain woke up it took in the full meaning of 'while continuing to build up National Insurance credits', but thanks :)

Thanks (0)
avatar
By rmillaree
24th Mar 2022 08:14

Cheers i hadn't even realised this change had happened.

I have done some digging and it appears those earning below the SPT will now get the freebie stamp class2 stamp - presuming the linked articles have got their facts correct

Per the icaew website - which should hopefully be reliable.

From 6 April 2022, self-employed individuals with profits below the SPT will build up national insurance credits to be able to access state pension and other contributory benefits but will not pay any class 2 NIC. This is a welcome step as voluntary class 2 NIC has proved administratively difficult.

The second links confirms rates in nice table format.

There may be knock on consequences perhaps those with sole trader income under 1k will now be better off doing tax returns if they don;t qualify for their stamp from elsewhere. I can certainly see an increase in minimal profit type businesses if thats a way of getting freebie stamp !

https://www.icaew.com/insights/tax-news/2022/mar-2022/spring-statement-n...
https://www.which.co.uk/news/2022/03/spring-statement-national-insurance...

Thanks (0)
Replying to rmillaree:
avatar
By Paul Crowley
25th Mar 2022 17:06

Have ICAEW rewritten it?

Thanks (0)
Replying to Paul Crowley:
avatar
By rmillaree
07th Apr 2022 10:18

YES - most definately was the case that what i posted at the time was exactly what the ICAEW said - they obviously got it wrong and changed the guidance very soon after i had made my post - bit scary that hmrc and ICAEW can between them not get clarity as to what is being announced on budget day !! - in that regard ICAEW like us are probably working on sketchy info at best

Thanks (0)
Replying to rmillaree:
avatar
By Latinaid
01st Apr 2022 08:27

The Which article is incorrect, I think? as the table for S/E NI has the LPL at £9880 from April - July and £12570 from July onwards, whereas it's actually £11908 from April onwards. (I'd been wondering how it would work with SA - someone submitting their tax return between April - June would have been asked to pay more NI than someone submitting July onwards.)

I'm still unclear about the issue of Class 2 below the SPT - Rebecca Cave's article says anyone with profits below the LPL will be credited, but the Which and ICAEW articles both talk about people between SPT and LPL.

Thanks (0)
avatar
By possep
24th Mar 2022 08:49

I am still not sure. I think it means no payments are due for individuals with income between 6725 - 9880 for 2022/23. Per HMRC:

At Spring Statement 2022 the government has announced that it will meet this ambition by aligning the starting thresholds from July 2022 and, alongside this, from April 2022, self-employed individuals with profits between the SPT and LPL will continue to be able to build up National Insurance credits but will not pay any Class 2 NICs.
If so voluntary payments for individuals with income under 6725, otherwise everyone could file a return with self employed income under 1000 and get their NI record credited.

Thanks (1)
Head of woman
By Rebecca Cave
24th Mar 2022 08:58

See my article : https://www.accountingweb.co.uk/tax/hmrc-policy/sunak-aligns-nic-and-inc...
Sorry about the, misleading headline, I didn't write that.

Thanks (1)
Replying to Rebecca Cave:
avatar
By Malcolm Veall
07th Apr 2022 10:04

Rebecca, reading the updated ICAEW guide: https://www.icaew.com/insights/tax-news/2022/April-2022/NIC-for-the-self...

It seems that the "self-employed traders with profits below the lower profits limit will be treated as if they had paid class 2 NIC" comment in your 23rd March piece is now superseded, and it is only traders with profits below the LPL but above the SPT who will be treated as having paid their Class 2, whereas traders with profits below the SPT will still have to actually pay the Class 2?

Thanks (0)
avatar
By rmillaree
24th Mar 2022 09:22

Ok the alarm bells are ringing in my ears now !

Us agents have probably all noticed the volume of clients where class2NI flag does not match what we submit on the tax return with regard to whether class2NI stamp is due or not.

Does anyone know if the new system will be "different" and address these issues - or are we going back to the bad old days where any wrong flag will mean NI not credited and as the bill is nil in both cases (low earners) misisng ni stamp flag will not be highlighted .

So i worry that if clients don't actively check their stamp is credited to their account any mismatch may be hidden from view. I think i will certainly be advising that clients should verfiy with hmrc that their ni stamp has been credited - unless we get a fix to this historic issue.

The very simple solution here is is to provide as API data available to accountants - date last started self employment and date last ceased self employment. Like hmrc would ever solve a problem with a sensible solution. Ideally at the same time tighten up forms to include start signal and end signal.

Thanks (3)
Replying to rmillaree:
avatar
By Paul Crowley
25th Mar 2022 17:10

Seriously well spotted
All years to date had HMRC making an ammendment, hence both Client and Agent warned that self employment pension credit tap was switched off.

Thanks (0)
avatar
By girlofwight
24th Mar 2022 12:08

Looking at the SI:

"3 Equivalent provision for Class 2 contributions

(1) The Treasury must by regulations make provision for the purpose of securing that, for the purposes of—
(a) the Social Security Contributions and Benefits Act 1992, and
(b) the Social Security Contributions and Benefits (Northern Ireland) Act 1992, the threshold for paying Class 2 contributions for a tax year is equivalent to the threshold at which Class 4 contributions become payable for that year.

(2) Regulations under this section may—
(a) also make provision having the effect that, in such circumstances as may be provided for, a person whose profits for a tax year are less than that threshold is treated as making Class 2 contributions;
(b) make provision having retrospective effect from no earlier than 6 April 2022;
(c) amend an Act of Parliament."

3(2)a has the effect of allowing a credit for Class 2 anywhere between £0 and the new combined Class 2 & 4 Threshold.

But, its "may" in (2) not "must" as in (1).

Not ideal drafting. Impacts a lot of my clients has they have p/t Self Employment.

Thanks (2)
Replying to girlofwight:
Morph
By kevinringer
12th Apr 2022 14:52

My reading (please correct me if I'm wrong) of the SI is that everyone with profits below the LPL will get free NI credits, including those below the SPT. I had asked about this matter on HMRC's Agent Forum last month. HMRC recently replied:

"Kevin the business area has now provided further guidance which states the measure introduced at Spring Statement regarding those who pay Class 2 only affects those who are Liable and fall within the Small Profits Threshold(SPT) and the Lower Profits Limit (LPL). Those who currently pay voluntarily will still be able to continue to do so."

The above statement that voluntary C2NICs will still have to be paid appears to contradict the SI, if I'm reading it correctly.

Thanks (0)
Replying to kevinringer:
avatar
By rmillaree
12th Apr 2022 15:17

What is strange is that the ICAEW changed their website guidance

from the this originally
"From 6 April 2022, self-employed individuals with profits below the SPT will build up national insurance credits to be able to access state pension and other contributory benefits but will not pay any class 2 NIC. This is a welcome step as voluntary class 2 NIC has proved administratively difficult."
to this
From 6 April 2022, self-employed individuals with profits between the SPT and the class 4 LPL will build up national insurance credits to be able to access state pension and other contributory benefits but will not pay any class 2 NIC. This is effectively a zero rate.

https://www.icaew.com/insights/tax-news/2022/mar-2022/spring-statement-n...

The fact that the ICAEW are going to the trouble of sitting on the fence here says everything you need to know as to how easy it is for us to work out something that should be outlined in black and white clearly by both hmrc and IAECW. If the IAECW cant find out the answer they are not fit for purpose IMHO.
Perhaps an email asking them why they are sitting firmly on the fence having clearly been one side of it.
I ssupcet they will say they are awaiting further clarification from hmrc - in which case why not put that on their website.
I am minded to forget about it for now and se how the mop flops in a couple of months.

Thanks (0)
Replying to rmillaree:
Morph
By kevinringer
12th Apr 2022 17:05

My suspicion is that whoever dreamed up this change was completely unaware of the existence of voluntary class 2 and how important they are and that's why there have been changes.

Thanks (0)