HMRC has a number of legacy computer systems, which can result in corrupted data and incorrect tax computations. This has been an issue with class 2 NIC as we explained in our newsletter on 8 December 2016, and again on 23 March 2017.
It appears that the problems with class 2 NIC have not been addressed by HMRC, perhaps because it expected class 2 to be abolished from 6 April 2018. In fact, class 2 NIC will be retained until 6 April 2019, when it will be merged with class 4 NIC.
A number of the 2016/17 tax computations for self-employed individuals have been issued by with adjustments to the class 2 NIC liability. The problems are caused by the NIC computer over-writing the data held on the SA computer, and the SA tax return information not being used to update the NIC computer. There are three broad issues:
- NIC computer thinks it hasn’t been notified that the taxpayer is self-employed so it has removed the NIC liability.
- Taxpayer started or ceased self-employment in 2016/17, but the NIC computer and SA computer hold different start or end dates for the self-employment.
- Taxpayer was an employee and self-employed in 2016/17, and the combined class 1 and 2 NIC liabilities exceeded the annual maximum, but the class 2 liability reported on the tax return was not adjusted accordingly. HMRC’s calculation includes the correct restricted class 2 liability
The monetary amounts in each case will be small so you need to consider whether or not it is worthwhile rectifying calculation. However, if the class 2 liability is incorrect, the taxpayer may not be credited with a full year of contributions to qualify for the state retirement pension. Also, a minor discrepancy between HMRC’s figures and the tax return calculation produced by your software could cause problems with a mortgage application.
Written by the Tax Advice Network