Share this content
15

Voluntary class 2 NI eligibility

Didn't find your answer?

A self employed taxpayer can choose to pay class 2 NI voluntarily if profits are below the threshold, so they have low profits.

I assume that low profits does not mean nil profits as is the case for a client who usually gets a few hundred pounds a year but this year the income is nil? Please would someone confirm.

Or, provided the client has an open self employment record (for NI purposes) can they make the contribution?

 I will also ask the client if they have ceased trading but if they say No then I need to know if they can pay class 2 or not.

Replies (15)

Please login or register to join the discussion.

RLI
By lionofludesch
15th Sep 2020 19:50

They have to be selfemployed. They can make a loss, though it makes no sense to make a loss of more than five or six hundred.

Ebay trader.

Thanks (0)
Replying to lionofludesch:
My photo
By Matrix
15th Sep 2020 20:02

Thanks, I assume by self employed you mean they have to still be trading?

I think it is the answer to this question which will give me my answer.

Thanks (0)
Replying to Matrix:
RLI
By lionofludesch
15th Sep 2020 20:30

Matrix wrote:

Thanks, I assume by self employed you mean they have to still be trading?

I think it is the answer to this question which will give me my answer.

Well, aye.

Nobody would ever pay Class 3 if you didn't have to be trading. They'd just say "oh I'm trading" and pay 20% of the Class 3 liability.

Thanks (0)
avatar
By Not Anonymous
15th Sep 2020 19:51

What is your reasoning?

Have you actually worked through the return to see what options you have if say turnover was £800 less trading allowance = £0 profit.

Thanks (0)
Replying to Not Anonymous:
My photo
By Matrix
15th Sep 2020 20:01

There was nil turnover. I have not prepared self employed accounts. All income below the personal allowance but client has come back on why I haven’t included class 2.

Thanks (0)
Replying to Matrix:
RLI
By lionofludesch
15th Sep 2020 20:31

Matrix wrote:

There was nil turnover. I have not prepared self employed accounts. All income below the personal allowance but client has come back on why I haven’t included class 2.

Tell him it's because he 's not trading.

Thanks (1)
avatar
By Paul Crowley
16th Sep 2020 03:39

I understood that Voluntary Class 2 has to be set up seperately.
Not a tax return issue unless already set up.

Has client already set up voluntary class 2 contributions?

Thanks (0)
Replying to Paul Crowley:
My photo
By Matrix
16th Sep 2020 06:49

Yes they have paid them for a few years so that is why they want to make them for 19-20.

Thanks (0)
Replying to Paul Crowley:
RLI
By lionofludesch
16th Sep 2020 07:01

Paul Crowley wrote:

I understood that Voluntary Class 2 has to be set up seperately.
Not a tax return issue unless already set up.

Has client already set up voluntary class 2 contributions?

I think we're confusing two issues here. The first hurdle is to establish whether the contributor is eligible to pay voluntary Class 2 NI. In other words, is he self employed ? The answer appears to be no.

Thanks (0)
avatar
By Tax Dragon
16th Sep 2020 07:14

Sounds more like a hobby than a trade. What does this fella live off? (Or is it live on? I'm never sure... and my inability to tell on from off is why I never took up electrical engineering.)

Thanks (0)
Replying to Tax Dragon:
My photo
By Matrix
16th Sep 2020 07:24

Thanks TD, privileged to be the recipient of your daily post.

They review books and raise proper invoices, just none for this return.

They have substantial assets so this was just to fill time and I expect was handy for their NI record too.

Thanks (0)
avatar
By thomas34
16th Sep 2020 09:10

My twopence worth is that if in the previous year a self-employed supplement was completed he is still self-employed until you put a cessation date on this year's return.

I've completed supplements in the past where NIL income (and maybe a few expenses) were reported which will entitle the taxpayer to opt for voluntary class 2 contributions.

I'd ask the client to confirm that he is still trading though. £156 is still a bargain to buy a year's state pension.

Thanks (0)
avatar
By fawltybasil2575
16th Sep 2020 19:48

@ Matrix (OP).

I note your post at 20.01 on 15 September 2020:-

“There was nil turnover. I have not prepared self employed accounts. All income below the personal allowance but client has come back on why I haven’t included class 2”.

I assume that “I haven’t included” refers to your sending a draft Tax Return (for 2019/20) to the client. I further assume, from your initial question, that you have seen Tax Returns for previous years, or at least for 2018/19; from which you will have noted that the Return included Self-Employment income, with no cessation date.

I am not sure as to what information you have received re the Self-Employment Income and Expenses in 2019/20 (apart of course from information which stated that there was no Income).

Firstly, of course if there had been Self-Employment INCOME for the whole year, then self-evidently the Self-Employment continued throughout the year: where however there was no such INCOME then, PRIMA FACIE, the Self-Employment will have ceased (impliedly shortly after 5 April 2019). However, I emphasise
“PRIMA FACIE”, since one then must query with the client what ACTIVITIES, if any, the client undertook in the self-employment (which will include, but is not restricted to, querying expenses).

You refer to the self-employment being that of producing book reviews: it would be useful to know what type of books, where the reviews are published etc. (you may have already established this). Suffice to say that, after ascertaining information re the ACTIVITIES, one must make then a judgment call as to whether the business has or has not continued.

If you establish the REASON why no income arose and specifically what activities were undertaken and when those activities will give rise to later income, then you are in a position to finalise the Tax Return on the basis of NO INCOME (with presumably, albeit not necessarily, expenses to offset against that income). A “white space” note is advisable, whenever you include figures for Self-Employment which show no Income (and regardless of whether there are any expenses) to illustrate that thought has been given, by the client, to the validity of the completed Self-Employment pages (to reduce the possibility of HMRC’s later contending that those pages have been completed improperly so as to benefit the client in terms of Pension entitlement).

You may find the following case of interest:-

http://financeandtax.decisions.tribunals.gov.uk//judgmentfiles/j11309/TC...

The case is a CGT one, and specifically re Entrepreneurs’ Relief, but it explains how a business can be validly considered to be a continuing one even where (exceptionally in that case) there is no evidence of activities having been carried out.

Basil.

Thanks (0)
Replying to fawltybasil2575:
My photo
By Matrix
16th Sep 2020 21:27

Thanks Basil, so you confirm that I should ask the client if they are still trading.

Thanks (0)
Replying to Matrix:
avatar
By fawltybasil2575
16th Sep 2020 22:34

Most certainly one should ask the client whether they are still trading, but such enquiry should be part of a “10 minute phone call” (more effective than back and forth emails) in which you discuss what they have actually DONE in the tax year - the sentence in my last post commencing “However I emphasise . . . “ seeks to explain this point.

Effectively the outcome of the phone discussion should be your being satisfied (or not) that the business was continuing by way of (in this case) some form of “book review” work which, whilst it produced no income in the year, enabled them to generate (or at least try to generate) income after the year-end (if you read the case link in my last post you will hopefully see the parallel therein with your client’s case).

Basil.

Thanks (0)
Share this content

Related posts