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Class 2 NIC cock-ups

31st May 2016
Tax Writer Taxwriter Ltd
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HMRC has been erroneously refunding class 2 NIC to taxpayers – what on earth is going on? 

From 2015/16 onwards class 2 NIC is collected through the taxpayer’s self-assessment, rather than paid separately by direct debit or cheque. Commercial tax return software has been amended to incorporate this change for the self-employed, but it appears the HMRC computer has not.

AccountingWEB members such as Debbie Danahar have complained about HMRC crediting the class 2 NIC due for 2015/16 back to her clients when she files SA returns for sole traders. Others have found that HMRC’s  SA302 computation for 2015/16 doesn’t add up. The automatic message from HMRC on submitting a SA return for 2015/16 says: “Your Class 2 National Insurance figure has been corrected in line with information we hold.”

HMRC is wrong; class 2 NIC is due for 2015/16 where the self-employed profits exceed £5,965. But you will be wasting your time arguing with the HMRC call-centre operative as they can’t override the computer. The HMRC staff member may tell you that your client is not registered for class 2 NIC, but this may be incorrect as the taxpayer’s NIC registration has somehow been lost in translation between computer systems.

The whole class 2 NIC cock-up appears to have its roots in the multiple legacy computer systems which still reside deep within HMRC. In some, but not all cases, data from the NIC system has been incompletely matched with taxpayer’s information held on the SA system. However, HMRC is working on the problem and it should be fixed “soon”.

In the meantime, your client may have received an unexplained tax refund of £145.60. It’s important this is not forgotten about, and the taxpayer’s NIC record is corrected. The individual will need to pay the class 2 NIC due for 2015/16 in order to build up their qualification for the full state pension.

Remember class 2 NIC is only payable for periods during which the taxpayer is under state pension age (SPA). However, women who are currently in their early 60s may not have attained SPA as that date is now individually set according to the person’s birth month. You should check when SPA will be attained using the online calculator

The ICAEW Tax Faculty has raised this class 2 NIC problem with HMRC and is waiting for a response. You can also raise any class 2 NIC issues directly with HMRC at a webinar on 15 June 2016 which will deal with paying class 2 in self-assessment.  

Replies (16)

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Tony Margaritelli, ICPA Chairman
By Tony Margaritelli
01st Jun 2016 11:46

I have received calls to my my office from members with the same issue on Class 2 NIC and also where transfer of allowances is concerned. I have been advised that HMRC have stated that they hope to "fix" the nic issue in November but have no date for a fix of the surplus allowances issue but that was given me by a member who contacted HMRC helpline direct. Yet again Agents and taxpayers are caused extra work which is none of their doing. Seriously, this does not bode well for the Digital Agenda does it. Tony Margaritelli - Chair ICPA

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Morph
By kevinringer
01st Jun 2016 13:13

To (hopefully) minimise C2NIC issues, before filing a Return I log into HMRC, load the client, click "Tax return options" then "Information to help you complete your tax return". This will open a page with some useful info including the amount of C2NIC payable by the client. But there's a problem. To date I've had 3 clients who don't have the "Information to help you complete your tax return" link. I've reported each case to HMRC online services and at their request I've sent screen shots. By the time HMRC come back to me the Return has been filed and HMRC incorrectly argue that the link has disappeared because the Return has been filed. I've just come across another case. Anyone else experienced this problem?

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Replying to kevinringer:
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By Mark Ferbert
02nd Jun 2016 11:36

Does this imply that if the "info to help you complete your return" screen shows a Class 2 NIC liability of £145.60 then a return filed with that amount on it won't be "corrected"? If so, is the problem limited to those cases where this screen does not show that figure? ie is this error going to affect every SA case with a Class 2 NIC liability, or only some cases where the return shows a liability, and HMRC (incorrectly) doesn't think there should be one?

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Replying to Mark Ferbert:
Morph
By kevinringer
02nd Jun 2016 11:53

Mark Ferbert wrote:

Does this imply that if the "info to help you complete your return" screen shows a Class 2 NIC liability of £145.60 then a return filed with that amount on it won't be "corrected"?

Not quite - there have been cases where HMRC have issued an SA302 which deducted C2NICs from the annual liability instead of adding it.
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By Moo
02nd Jun 2016 11:27

I have a slightly different perspective on the class 2 position as checking the information on the HMRC website has so far revealed 2 clients who have continued to pay class 2 for many years after ceasing self employment in the mistaken belief that this was required to qualify for a state pension. One has been in full time employment, the other in receipt of child benefit so the class 2 has been a gift to the treasury. The NI helpline inferred that when I give them the self employment cessation date they would be able to correct the position and make a refund but I wonder how many years they will be prepared to repay?

Thanks (1)
Morph
By kevinringer
02nd Jun 2016 11:50

I completed my own Tax Return today using HMRC's own software (the software is awful - I use third party software for all my client's returns but deliberately endure HMRC's software for my own return just to experience what the great unrepresented have to put up with). Anyway, it told me that I have no C2NIC liability! It did give me a link to another part of GOV.UK to check my C2NIC but when I clicked on the link it took me to a GOV.UK page which said the service was not yet operational! C2NICs are a relatively small change. If HMRC can't cope with this it proves that MTD will be a disaster.

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By neelali33
02nd Jun 2016 14:41

Well we have submitted a Tax Return to HMRC using third party software and HMRC have calculated the full class 4 NIC, disregarding our calculation, where we have adjusted as the client was both employed and self employed in the year and would have paid more than the maximum due.

Having spoken to HMRC's advisor, the first one said class 1 NIC has nothing to do with the Class 4 NIC calculation!!!

Second one referred us to the NIC department.

Has anyone else experienced such an issue?

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By TrishB
06th Jun 2016 13:04

What about the situation for people who have previously had NIC deferment, but from 15/16 they didn't have to apply for deferment as HMRC was going to calculate that they did not overpay class 2 NIC based upon their employed and self employed income. On completing a self assessment online for a client it does not give me any option to adjust the automatic addition of the £145.60 but simply adds it to the self assessment account - even though class 1 NICs are well over the limit.

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Morph
By kevinringer
06th Jun 2016 13:27

.

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By itp3asso
06th Jun 2016 13:31

It s NOT a [***] up how dare you!!!

To classify as [***] up infers HMRC only SOMETIMES err.

This is indeed SNAFU situation normal all " f----d" up ......

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Jennifer Adams
By Jennifer Adams
20th Jun 2016 11:04

I too have received notification of a couple of CIS clients who have received a tax refund different from the amount as per the correct calculation. This gives the impression that us accountants dont know what we are doing.
So question is... what to do? I will be telling clients obviously but do I tell them to pay the extra over or wait for a couple of years for HMRC to get their act together and send a separate demand?
I even sent a 'information sheet' round to my clients warning them that the extra would be due in one hit.
If they pay then trying to get an overpayment is liking getting blood from a stone.

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By Louby
26th Nov 2016 14:14

Well HMRC are doing something this November about Class 2 NICs - I've just received a demand letter for £509 they say I haven't paid. Considering that I always use the HMRC portal to report my earnings and I've been paying what they tell me I owe them I found this very painful. Can't they get anything right?!

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Morph
By kevinringer
28th Nov 2016 13:39

FYI as at today HMRC's TR software still has C2NICs error. If year earnings are below the SPT and you elect to pay C2NICs voluntarily an error is reported. HMRC's advice is not to elect to pay voluntarily! It seems to affect taxpayers who cancelled their C2NIC DD after the last DD was collected in July 2015. HMRC have no idea how and when they're going to fix it.

HMRC announced C2NICs were moving to SA in November 2014. Two years later and the software still isn't working. Meanwhile HMRC recon they're going to be ready for MTD in 17 months!

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By katrinakilcoyne
08th Oct 2017 10:22

This is still not fixed! Best to call NI departement to resolve but call the Agent Number and ask to be transferred as you will get through quicker.

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Replying to katrinakilcoyne:
Morph
By kevinringer
09th Oct 2017 09:56

Katrin, did the ADL transfer you direct to someone in NICO or put you in the queue. When ADL transferred me they put me in the queue and I had to go through the voice unrecognition system.

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Replying to kevinringer:
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By katrinakilcoyne
09th Oct 2017 10:58

Hi Kevin
I think I was put straight through, there was a slight delay before the phone call was picked up but I don't remember going through the voice recognition system.
Katrina

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