SAM121665 | Returns: individual returns: Class 2 National Insurance

Note: the information below is provided for reference only. The abolition of mandatory Class 2 NI was announced in the Autumn Statement on 22 November 2023, and was effective from 6 April 2024:

If a customer’s profits are £7,105 or more a year

Class 2 contributions are treated as having been paid to protect the customer’s National Insurance record.

If a customer’s profits are less than £7,105 a year

The customer does not have to pay anything but they can elect to pay voluntary Class 2 contributions.

Background

In the 2014 Budget, the Government announced that collection of Class 2 NIC will move into Self Assessment (SA) for the majority of self-employed customers, so that they can deal with their tax and National Insurance Contributions (NIC) payments at the same time.

These proposals were approved by Parliament on 12 February 2015 when the National Insurance Contributions Act 2015 was passed and the changes came into effect from the start of the 2015-16 tax year, making paying Class 2 NIC simpler and more straightforward and reducing the administrative burden on the self-employed and HMRC.

Accounting

Class 2 NIC is calculated by the National Insurance Service and is collected through SA for the majority of self-employed customers for the 2015-16 tax year onwards. From April 2016, Class 2 NIC will form part of the SA Balancing Charge Debit (BCD). It will not be included in Payments on Account (POA).

A small number of self-employed customers who are not required to complete the self-employed pages of an SA return will continue to receive an annual bill or continue to pay their Class 2 NIC by Direct Debit through the National Insurance and PAYE System (NPS).

Determining liability for Class 2 NICs

Small Earnings Exemption and Class 2 and 4 deferment have been abolished. Liability for Class 2 NIC will be determined by the annual profit reported on the SA return. Where the profit figure exceeds a set threshold (the Small Profits Threshold (SPT)), a Class 2 liability will arise.

Where the profit figure is below the SPT, no Class 2 liability arises but the customer can decide to pay the Class 2 NIC voluntarily in order to protect their contributory benefits, including state pension. They have to make this election by 31 January following the year of the return.

SA filing and Statutory Due Dates (SDD)

This reform does not impact or change SA filing dates. The statutory due date for Class 2 NIC is the same as the SA BCD. For example, any Class 2 NIC for 2015-16 included in the SA BCD, will be due on 31 January 2017.

Voluntary Payments not made by the 31 January payment date

Where a customer elects to pay Class 2 NICs voluntarily but does not make payment or only makes part payment by the 31 January payment date, the voluntary Class 2 amount charged will be reduced to the amount paid and the customer notified by issuing an SA302 Tax calculation.

Debt Management and Banking (DMB) will not pursue an unpaid Class 2 voluntary amount.

Where the Class 2 NICs information is held on SA

The Class 2 amount will be pre-populated into:

• Local Date capture (LDC)

• Online Tax Return SA (OTRSA)

• Create Return Charge

• View L & P

Third Party Software

Where the Third Party Software Developer’s have an agreement with us (API –Application Programming Interface) we will also be able to populate their software. If they do not, their customers will be able to include the Class 2 NIC amount on their return.

How the customer will notify us that a different amount of Class 2 NICs is due

OTRSA users

When we present the Class 2 NICs amount due to the customer on OTRSA, if the customer disagrees with the amount, they will be invited to go to an interfacing digital application to review the self-employment period dates we have used to calculate the Class 2 NICs amount and give us different dates if they are incorrect. When this has been done, the customer will be transferred back to OTRSA to complete their return.

Non-OTRSA users

If the customer does not use OTRSA, they will need to notify us via the KANA form or contact the National Insurance Helpline.

Auto-corrections to the Class 2 NICs

HMRC will be able to auto-correct a customer’s Self Assessment where:

• the Class 2 NICs amount self-calculated by the customer on an SA100 does not agree the centrally held figure.

• NPS sends an updated Class 2 amount and the customer return has already been captured

For more information regarding auto-corrections see Returns: view and amend return: auto-correcting the SA return for Class 2 National Insurance

Return amendments and 31 January

If a customer amends their SA return, they cannot amend the Class 2 NICs voluntary election box after 31 January to elect or un-elect to pay Class 2 NICs voluntarily. In addition, once a customer has paid, the payment is allocated to the SA BCD and Class 2 NICs record. We do not want this payment to be moved as it may affect the customers entitlement to benefits.

Budget Payment Plans (BPP)

Payments made into Budget Payment Plans will continue to be used as payment towards a customer’s SA liability, including the BCD (which now includes Class 2 NIC). Note: A BPP should not be set up by a customer with outstanding arrears on the SA account.

If the amount paid under the BPP does not cover the full amount due, the balance must be paid by the due date.

Coding out underpayments

Although Class 2 NICs will be collected as part of the SA BCD for the self-employed customers from 2015-16, the Class 2 NICs part of the BCD will not be transferred to be coded out, as this is not covered by legislation.

Coding out of small debts

From 2015-16, unpaid BCDs that include Class 2 NIC will flow to the Integrated Debt Management System (IDMS) and may be coded out as part of the IDMS Campaign process.

From 2015-16 onwards, Class 2 NIC debts that are not suitable for collection through SA will continue to be sent for coding out before the debt is moved to IDMS. Those that cannot be coded out will continue to flow to IDMS.

Late Payment Interest (LPI) and Higher Rate Provisions (HRP)

Class 2 NICs payable through SA for 2015-16 onwards will be subject to the same LPI provisions that currently apply to the SA BCD.

Late payment penalties (LPP)

Class 2 NICs included as part of the SA BCD will be subject to the existing SA LPP regime.

SA Determinations and Revenue Assessments

These functions will not be changed to incorporate the changes to collect Class 2 NICs through SA