Concerns are mounting that some self-employed workers are at risk of missing out on future pension payments because of a lack of clear communication between HMRC and the National Insurance office (NI office) over payment of Class 2 National Insurance contributions (NICs)
As of April 2016, Class 2 NICs had to be collected via self-assessment on the tax return for self-employed workers instead of via direct debit, as had previously been the case.
Hereford firm Thorne Widgery is warning that it has come across a number of cases where the two departments responsible for implementing the changes and recording Class 2 NICs, namely HMRC and the NI Office, have failed to share this information. As a result some people, who have completed their self-assessment tax returns correctly, have had the Class 2 NIC removed from their tax calculations for 2015/16 when contributions are owed or have already been paid voluntarily.
Megan Smith, tax manager at Thorne Widgery, said: ‘It would seem that HMRC and the NI Office have failed to communicate properly to one and other – even though they are supposed to be more joined up – about those who are due to pay Class 2 NICs since the changes made last year.
‘We have already advised clients where HMRC have been taking the Class 2 NIC off their tax calculations even though it states on the tax returns that they are obviously self-employed.
‘Worryingly, having spoken to, and heard from, other peers within our profession both locally and nationally and we are not alone on this issue.’
The tax team at Thorne Widgery is encouraging those who are self-employed and subject to Class 2 NICs, to check their tax bill to ensure they are paying contributions.
Smith said: ‘HMRC seems to be washing their hands of this problem and they have already told us that they expect us to ring them regarding each client to get it corrected, even though it is their error.
‘We predict there will be many more people out there affected by this who may not be aware of the issue and could be unwittingly not paying when they should be.’
ICAEW’s tax faculty blog has also highlighted the issue, pointing out that HMRC is unable to provide a general solution. Each case has to be taken up individually with the NI helpline, which it describes as ‘very frustrating and a great waste of agent time’.
The tax faculty says the NIC liability is determined by the information held in NPS (HMRC’s NI Insurance and PAYE system) and this overwrites any figures that an agent or taxpayer reports on a self-assessment return, even if the return is correct. Entries on the self-assessment return do not update NPS, and HMRC has been issuing amended calculations which do not agree with submitted returns.
There are number of reasons for this, including taxpayers not registered as self-employed for NIC purposes in NPS, possibly because they cancelled a direct debit which was in place for Class 2 NIC and were then recorded as ceasing to be self-employed. In some cases the self-assessment record may hold an incorrect or temporary NI number and, therefore, NPS did not populate the Class 2 liability or Class 1 paid in self-assessment.
Agents who are concerned about possible non-payment of Class 2 contributions in cases where they should be paid, are advised to contact the National Insurance helpline on 0300 200 3500.
