2015/16 saw a change in the manner that HMRC collected Class 2 National Insurance (NI) from self-employed taxpayers.
Under the new system, the Class 2 NI liability is collected through the taxpayer’s self-assessment rather than by a monthly direct debit payment or by paying a quarterly invoice.
The problem appears to be that HMRC’s computer systems do not seem to have been brought up to date to account for this change.
We have personally seen the following problems with the new system: –
- We recently tried to file a tax return, but it failed because the total tax liability shown in the Return did not agree to the tax liability that was calculated. We reviewed the Return and quickly found that the difference related to the Class 2 NI liability. After contacting the software producers, the error was corrected, and the Return was filed.
- HMRC are now issuing Forms SA302 to all taxpayers once the tax return has been submitted. We have noticed that the final tax liability does not match the liability that was reported in the Return. Again, the difference is the Class 2 NI liability. Taxpayers are receiving a tax REFUND of £145.60. HMRC are kindly explaining the difference on the Form SA 302 by stating that “Your Class 2 National Insurance figure has been corrected in line with information we hold.”
Only one problem – HMRC are wrong!
If the taxpayer’s profits from self-employment are greater than £6,725 (2022/23) then Class 2 NI is due.
It appears that the HMRC has occurred because their computer systems are showing that taxpayers may not be registered for Class 2 NI. This is because HMRC have failed to reconcile the information on their National Insurance System to the Self-Assessment System.
HMRC are aware of the problem and are now endeavouring to correct it.
Meanwhile, taxpayers should be made aware of the problem and check the Forms SA302 to see that the correct calculation has been made. If an error has been found the taxpayer should be aware that the Class 2 NI will have to settled eventually.
If the taxpayer does not settle the Class 2 NI liability, they should remember that may not build up enough entitlement to qualify for the full state pension.
Local accountants and tax advisers, Trueman Brown, deliver vital services to small business. If you require any assistance, then please contact us.