Ensuring Class 2 National Insurance is included in Self-Assessment calculations

Ever since the collection of Class 2 National Insurance Contributions (NICs) changed from a separate, regular payment system to being part of the self-assessment tax return in July 2015, agents and their clients have experienced a number of calculation and payment issues which has caused the agent community a good deal of frustration.

The ATT and other bodies have been discussing these problems with HMRC on an annual basis (see for example our articles on issues in 2018 and the background to the computer systems involved in 2019).

The issue has been raised again this year and on 17 June 2020, HMRC provided us with the following statement for publication.

“HMRC have considered concerns raised by Professional Bodies representing self employed agents in relation to instances where Class 2 National Insurance Contributions (NICs) are not included in a customer’s Self Assessment (SA) calculation, and as result go unpaid. 

Paying Class 2 National Insurance is not only a legal requirement, it also protects a person’s future entitlement to State Pension.

HMRC have confirmed that most people are correctly registered for SA and Class 2 NICs, and do have their Class 2 NICs included in their SA calculation.  Where this doesn’t happen HMRC have found that, in the overwhelming majority of cases, the underlying reason is that the self employed person has not correctly registered as self employed.  They have registered for SA (on the CESA system) but not registered for Class 2 NICs (on the NPS system).  As it is the NPS system that determines the amount of Class 2 NICs due this prevents Class 2 being included in SA calculations. 

While HMRC understands why changes to our IT systems to deliver an automated solution would be desirable any such solution is prohibited by cost and plans in place for the future of the IT systems concerned.  

Agents and self employed people are being urged to correctly follow the existing self employed registration process by completing the correct registration form, which will ensure that the self employed are registered on both the NPS and CESA systems.  Completing form SA1 only results in registration for Self Assessment tax and Class 4 NICs whilst completing form CWFI results in registration Self Assessment tax, Class 4 NICs and Class 2 NICs.

HMRC is keen to make it clearer and easier for the existing process to work and will continue to work with Professional Bodies to help us improve guidance and communications.”   

We have now escalated the matter as far as it is possible to do with HMRC and, as the statement confirms, it is not cost effective for HMRC to implement a global ‘fix’ to identify any remaining self-employed individuals who are, for whatever reason, not correctly registered for Class 2 purposes.

We trust that all members are already following the recommended routes for registering all newly self-employed individuals.

For existing self-employed individuals however, if in any doubt, members may wish to consider checking the position. Many self-employed individuals will have set up Government Gateway accounts recently to claim their SEISS grants and one option might be to encourage them to set up their Personal Tax Account as well, in order to check their Class 2 record is up to date and check to see if there are any unexpected gaps.  

HMRC have also provided the following links with further detail:

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