Self-employed taxpayers whose profits are below the small profits threshold (set at £6,515 for 2021/22) do not have to pay Class 2 National Insurance contributions, but can choose to do so voluntarily. This can be a cheap option for securing a qualifying year for state pension and contributory benefit purposes – Class 2 contributions are £3.05 per week for 2021/22, whereas Class 3 voluntary contributions are £15.40 per week. Class 2 contributions are payable via the self-assessment system by 31 January after the end of the tax year to which they relate.
To help taxpayers affected by Covid-19, HMRC waived the late filing penalty for the 2019/20 self-assessment tax return as long as the return was filed by 28 February 2021. However, this caused problems for taxpayers opting to pay voluntary Class 2 contributions for 2019/20 where the return was filed after 31 January 2021, even if the voluntary Class 2 contributions were paid by this date.
HMRC’s systems were unable to deal with the payment of voluntary Class 2 contributions where the 2019/20 tax return was filed after 31 January 2021 and were unable to implement alternative procedures at the time. Contributions paid before the return was filed could not be processed as HMRC were unaware of what the payment related to, whereas contributions paid when the return was filed were paid late and the return was corrected to remove those voluntary contributions. Payments made in respect of voluntary Class 2 contributions were either allocated elsewhere, held on account or refunded.
HMRC have now addressed this issue. Contributors affected should contact HMRC’s National Insurance Helpline on 0300 200 3500 to ensure that they receive credit for 2019/20 for their voluntary Class 2 National Insurance contributions. If the contributor has not received a refund, HMRC will arrange for the payment made to be recorded correctly as voluntary Class 2 National Insurance contributions. Where the payment has already been refunded, HMRC will provide details of alternative ways for the contributor to pay voluntary Class 2 National Insurance for 2019/20.
Where payment was made after Class 2 payment deadline of 31 January 2021, HMRC will determine whether payments can be treated as paid on time, depending on the individual’s circumstances.
Written by the Tax Advice Network