Share this content
8

Voluntary contributions

Class 2 or 3

Didn't find your answer?

We have a client who was self employed but stopped 4 years ago. He receives a private pension, is 64 years old. He receives divicdends

He has a gap of 4 yeasrs in his state pension contributions which HMRC have told he can make up as class 2. Going forward should he pay class 2 or 3 voluntarily. My understanding is that he can't pay class 2 as he's not self employed. Tax return won't let me tick the box and reading online that's the case.

Replies (8)

Please login or register to join the discussion.

By Paul D Utherone
22nd Oct 2019 15:33

If his s/e ceased 4 years ago the ability to pay voluntary Class 2 ceased with it and he is left with Class 3 as the only option

Thanks (2)
Replying to Paul D Utherone:
By 0098087
22nd Oct 2019 15:43

Tha'ts what I thought

Thanks (2)
RLI
By lionofludesch
22nd Oct 2019 18:08

Or ..... he could buy some stuff to sell on eBay.

Up to £1000 trading allowance tax free and he saves about £600 in NI.

Thanks (3)
Replying to lionofludesch:
avatar
By zebaa
23rd Oct 2019 09:35

He could even make a small loss...

Thanks (3)
Replying to zebaa:
RLI
By lionofludesch
23rd Oct 2019 11:48

He could - but not too regularly. You don't want HMRC to challenge whether it's run for a profit.

Thanks (3)
avatar
By David Heaton
23rd Oct 2019 11:06

If he's 64 and only has four missing years, hasn't he already paid enough NICs to get a full state pension (35 qualifying years)? Has he checked via his PTA? Or the Future Pension Centre?

If he needs and wants to make up back years when he wasn't self-employed or working abroad, he can only pay Class 3. It's that simple. He can't magic up a past period of self-employment to pay Class 2 for the missing years.

Bear in mind that only NICs paid on earnings before the last 6 April before his 66th birthday will count. Any NICs due on earnings from 6 April to his 66th birthday will not count towards his state pension, for the very practical reason that they won't be on his record at the time the DWP calculates his pension. That's always been the case. So even if he does start buying and selling bits and pieces to create a trade, at 64 he's probably only going to get one more year under the belt before that 6 April deadline. He can only cover four missing years with Class 3.

By far the simplest thing to do is bite the bullet, pay the Class 3 and bank the extra £250 of state pension per year for each extra contribution year. Think about the maths: for 2017-18 he can pay £741, once, which will add £250 per year to his state pension for life. That's tantamount to free money if he's in good health.

Thanks (2)
Replying to David Heaton:
RLI
By lionofludesch
23rd Oct 2019 11:50

David Heaton wrote:

If he's 64 and only has four missing years, hasn't he already paid enough NICs to get a full state pension (35 qualifying years)? Has he checked via his PTA? Or the Future Pension Centre?

Yes - he definitely needs to check his contribution record before shelling out good money.

Thanks (1)
avatar
By pauljohnston
28th Oct 2019 10:40

Also be aware that it has been reported that there are errors within the online pension forecasts. So use a BR19.

I concur tell him to make the Class 3 either by DD or quaterly.

David Heaton comments that payments can only be made until the end of the tax year before his SPA. I read somewhere it actually suggested that it is until the year in which you take your State Pension ie a year deferment allowed an extra year of contributions. As usual I cant find the article so can any person confirm or otherwise. Thanks

Thanks (1)
Share this content