Rising concern over payment errors for self-employed Class 2 NICs
SELF-EMPLOYED journalists risk losing out on future pension payments because Her Majesty's Revenue and Customs (HMRC) and the National Insurance office (NI office) are failing to properly share information about payment of Class 2 national insurance contributions (NICs). Since April 2016 these have been collected annually as part of the January tax bill - rather than the previous monthly direct debit.
Accountant firms in the Institute of Chartered Accountants in England and Wales say they have discovered a number of cases where HMRC and the NI office have failed to share information, resulting in some people having had their Class 2 NICs removed from their tax calculations for tax year 2015/16, despite having paid them and having completed their self-assessment tax returns correctly.
How does this happen? HMRC's NI Insurance and PAYE system, NPS, determines how much Class 2 NICs you pay and liability is determined by the information held in NPS, which overwrites any figures that you or your accountant report on a self-assessment return, even if the return is correct. Conversely, your tax return doesn't update NPS and HMRC has reportedly been issuing amended calculations that do not agree with submitted returns.
Make sure you are registered as self-employed for NIC purposes in NPS. If you cancelled your monthly direct debit after the switch to annual collection, you may now be recorded as no longer self-employed.
Whether you do your own self-assessment tax return or your accountant does it for you, if you are self-employed you should check your tax bill without delay. NICs payments count towards your state pension so if HMRC has wiped them you could find yourself receiving a reduced payout years down the line when you retire. Your tax bill should clearly state both that you are self-employed and that you have paid, or are owing, Class 2 NICs.