With a few exceptions, if you are self-employed (or in partnership), you are required to pay Class 2 National Insurance Contributions (NIC). While those of us long enough to remember it being called “The Stamp” will agree (because you could literally go to the Post Office and buy a contribution stamp), the world of Class 2 NIC has largely remained unchanged for decades.
Even after The Inland Revenue (that was) absorbed the National insurance Contributions Office and later became HM Revenue & Customs (HMRC), the taxation backwater that surrounded Class 2 NIC remained largely unaffected. However, for the 2015/16 tax year onwards, Class 2 NIC will be collected through the Self-Assessment system in the same way that your income tax and Class 4 NIC are. Until now, Class 2 NIC was collected in four-monthly arrears by Direct Debit which means the last such payment from your bank accounts will be in July 2015.
After July, for the sake of security, you should cancel the Direct Debit mandates for payment of Class 2 NIC.
Whilst moving the Class 2 NIC system into Self-Assessment will simplify collection and at the same time manage to mop up the few self-employed taxpayers who aren’t paying Class 2 NIC but should be, the changes also spell the end for two special forms. We can now say goodbye to the application for Deferment of National Insurance (for those who are also employed and pay sufficient Class 1 NIC through their payroll so that they have reached the Upper Earnings Limits above which Class 2 NIC is not due), and gone too is the Certificate of Exception from liability (for those who had Small Earnings below an annual profit level of £5,885 (2014/15 rate). If you fall into these special cases, your position should now be calculated automatically for the 2016 Self-Assessment Tax Return onwards.
If you are used to paying your Class 2 NIC by means of monthly direct debits, HMRC will happily receive a monthly payment to your Self-Assessment account under agreed arrangements.
Of course, underpayments and overpayments of Class 2 will hopefully now be a thing of the past. If you have overpaid Class 2 NIC for 2014/15, however (because perhaps you had a bonus higher than expected or this year you have low profits) don’t forget that you can claim a refund of NIC for 2014/15 by writing to HM Revenue & Customs, National Insurance Contributions Office, Self Employment Services, Benton Park View, Newcastle upon Tyne, NE98 1ZZ. You will need to confirm your NI number, confirm why you want a refund and include proof of earnings (e.g.: a copy of your accounts and P60) – even though you might have hoped HMRC would have had this information already!
For further information on any of the above points or to discuss your affairs generally, please do not hesitate to contact Robin Beadle.