NI Class 2 backpayment with Small Earnings Exception certificate

tagq2

Hi all,

I have been registered self-employed for the past few years to cover a small amount of earnings. I have a Small Earnings Exception certificate for this and do not pay Class 2 voluntarily.

I recently contacted HMRC about paying a 2004/5 NIC gap where I had no other earnings. Since I was registered self-employed during the whole of that tax year, I was told that I could pay Class 2 for that year in arrears by writing to them and asking for the certificate to be cancelled for the relevant 52 weeks - they would then raise a bill at the current rate and I could pay it, allowing that year to qualify for Basic State Pension purposes.

This surprised me, but it's a lot cheaper than paying Class 3, so I wrote to them and made clear that I would like to proceed on this understanding.

I called up to check progress. The assistant told me that while the request had not been responded to yet, in fact I was not able to pay Class 2 NI "at my convenience" and that, if I had a SEE certificate, I could only make up for a shortfall via the more expensive Class 3. What is more, the assistant explained that I can only start contributing Class 2 from the date I sign a statement wishing to do so - no backpayments.

However, that advice itself seems to conflict with the wording of my (latest) SEE certificate, which states, "Please note that if you were granted exception from the beginning of a tax year and are solely self-employed, you may wish to backdate payment of Class 2 NI contributions to ensure you have a fully qualifying year for benefit and pension purposes." While that wording does not confirm that I can backdate _6 years_, it seems to suggest that I can do more than 0 days of backdating.

This seems to give three possibilities when holding an SEE certificate:
(1) I can pay voluntarily up to a full 6 years ago, as the first assistant advised, although it would probably be at the current rate;
(2) I can backdate payment for some period, suggested by the wording of the SEE certificate, but not for a full 6 years;
(3) I can't backdate payment at all.

(3) seems to mean that I have to anticipate before the start of the tax year if I'm likely again in that year not to make sufficient BSP-qualifying NI contributions by any other method, so I can start paying voluntary class 2 before the first Sunday of the tax year.

I guess the worst case scenario is that they'll raise a bill and then declare the contribution invalid for pension purposes anyway, and because the debt isn't actually 6 years old the 6 year Statute of Limitations doesn't apply. Hopefully the wording of my letter makes it clear that I only want them to proceed if the advice as I understood it was correct.

Does anyone know what my actual position is? Thank you for reading.

taxing

tagq2 wrote: »

Hi all,

I have been registered self-employed for the past few years to cover a small amount of earnings. I have a Small Earnings Exception certificate for this and do not pay Class 2 voluntarily.

I recently contacted HMRC about paying a 2004/5 NIC gap where I had no other earnings. Since I was registered self-employed during the whole of that tax year, I was told that I could pay Class 2 for that year in arrears by writing to them and asking for the certificate to be cancelled for the relevant 52 weeks - they would then raise a bill at the current rate and I could pay it, allowing that year to qualify for Basic State Pension purposes.

This surprised me, but it's a lot cheaper than paying Class 3, so I wrote to them and made clear that I would like to proceed on this understanding.

I called up to check progress. The assistant told me that while the request had not been responded to yet, in fact I was not able to pay Class 2 NI "at my convenience" and that, if I had a SEE certificate, I could only make up for a shortfall via the more expensive Class 3. What is more, the assistant explained that I can only start contributing Class 2 from the date I sign a statement wishing to do so - no backpayments.

However, that advice itself seems to conflict with the wording of my (latest) SEE certificate, which states, "Please note that if you were granted exception from the beginning of a tax year and are solely self-employed, you may wish to backdate payment of Class 2 NI contributions to ensure you have a fully qualifying year for benefit and pension purposes." While that wording does not confirm that I can backdate _6 years_, it seems to suggest that I can do more than 0 days of backdating.

This seems to give three possibilities when holding an SEE certificate:
(1) I can pay voluntarily up to a full 6 years ago, as the first assistant advised, although it would probably be at the current rate;
(2) I can backdate payment for some period, suggested by the wording of the SEE certificate, but not for a full 6 years;
(3) I can't backdate payment at all.

(3) seems to mean that I have to anticipate before the start of the tax year if I'm likely again in that year not to make sufficient BSP-qualifying NI contributions by any other method, so I can start paying voluntary class 2 before the first Sunday of the tax year.

I guess the worst case scenario is that they'll raise a bill and then declare the contribution invalid for pension purposes anyway, and because the debt isn't actually 6 years old the 6 year Statute of Limitations doesn't apply. Hopefully the wording of my letter makes it clear that I only want them to proceed if the advice as I understood it was correct.

Does anyone know what my actual position is? Thank you for reading.

This link to HMRC pages says you can pay voluntary class 2 even though self employed with low earnings exception:
http://www.hmrc.gov.uk/ni/volcontr/basics.htm#5

Scroll through to the voluntary contributions bit for self employed.

Once it is agreed you can make the voluntary conts, I can't see why the treatment of you should then be any different from any other person making voluntary contributions in that if they are allowed to back date 6 years then you too should be.

You should also request a pension forecast to ensure making these top ups is beneficial in the first place...you only need 30 qualifying years now, not the 42 you used to need.

Oh, and if you also pay class 1 NICs as employee then you may not need to pay this class 2 at all....it's not clear from what you said. Also, men nearing retirement (over 60) get automatic credits for NICs whether paying or not - so pension forecast is really a good bet in that instance.

Regards.

tagq2

taxing wrote: »

Once it is agreed you can make the voluntary conts, I can't see why the treatment of you should then be any different from any other person making voluntary contributions in that if they are allowed to back date 6 years then you too should be.

Thanks for your response.

It is odd. When I offered to just pay NICs immediately and voluntarily for the 2004/05 period - I was hoping he'd just give me a payee reference so I could do the bank transfer immediately- he said I couldn't do that but would have to write requesting cancellation of the certificate for a particular period. I'd then be billed for that period and have to pay the bill.

The second guy said I couldn't back date a cancellation at all, despite what it suggests on the certificate - he spoke as if I was being cheeky to voluntarily try to pay the cheaper Class 2 in arrears rather than Class 3. He then said that any request to pay arrears of Class 2 would take "weeks" to process (type in date, click some "issue bill" thing, hand to postman?), so I would probably miss the deadline for 2004/05 anyway.

I've just composed a new letter quoting from the HMRC web site and the Exception certificate.

You should also request a pension forecast to ensure making these top ups is beneficial in the first place...you only need 30 qualifying years now, not the 42 you used to need.

I'm reasonably early in working life and the mentioned period of low earnings (no Class 1 in 04/05) was mostly a study year; since Class 2s are very reasonably priced it seemed wise to contribute them in missing years... who knows what the future holds (working abroad etc.)!

What the second guy says also worries me as it means in the future I'd have to know before the start of the tax year whether that year could count towards BSP if my only substantial income that year is to be from self-employment: as far as I understand it, you have to pay every single week of Class 2 NIC for any of that Class 2 NIC to count towards BSP for that year. This seems absurd, as if I end up earning more than the threshold in that year from self-employment, liability for Class 2 becomes compulsory anyway?

If I were older then a Class 3 top-up would probably still be worth paying if I wouldn't otherwise make up the years as you say - my mother paid a few of these for herself to good benefit - but at 5x the cost I'll pass for now. But I may be seeing things wrongly!

taxing

Hi

Have been looking at the HMRC NIC manuals and seems you can be given leave to make up back years if you pass two reasonable excuse positions (which I have already forgotten cause it's all in fairly complicated jargon: the NIC manual need an overhaul guys, if you are listening...).

Put NIM23003 in the search facility on HMRC web link I gave. Considering the conflicting advice HMRC are giving out, I'd say you had a reasonable excuse....

Also look at NIM20008, and this : http://www.hmrc.gov.uk/nic/ca5603.pdf

With income tax - you can send a cheque 'on account' of a bill and payment dates from when you sent it. It could be worth a try with the nics. You could send a cheque for £124.80 with your chase letter re. the earlier application to pay voluntary conts. It would get there before 6/4/11.

There is also a pdf of the form to be used when applying to pay voluntary class 2 going forward (seach HMRC for it or say and I will send a link) - you could fill in that but notate it to show paying for 2004/05 with payment enclosed...keep a photocopy of EVERYTHING you send as proof of the application.

Best of Luck.

Regards

tagq2

taxing wrote: »

Put NIM23003 in the search facility on HMRC web link I gave. Considering the conflicting advice HMRC are giving out, I'd say you had a reasonable excuse....

Ah, NIM23003 is interesting - thanks. Although the Regulation 61 "ignorance or error" clearly apples, the "due care and diligence" definition in NIM23005 might be harder to justify: they might ask why I didn't offer to pay sooner (maybe I'll pass the lack of "intelligence" test ). NIM23006 I guess would only help me if I'd been given (+evidence) the dodgy advice many years ago, as obtaining the correct information first time at any time in the past few months wouldn't AFAICT have changed my position.

However I'm still trying to work out what the "time limits" referred to in NIM23003 are, i.e. which limits specifically apply to voluntary class 2 NICs. Possibilities:

• NIM23001 gives two clear limits "for benefit purposes": the "paid on time" limit (Jan after end of tax year) and the "paid late" (6 years) limit. The latter appears to adjust the date on which they are regarded as having been paid while the former does not;
• NIM23002 gives time limits for rates charged;
• NIM20005 gives due dates referred to in NIM23004.

Of course, if I can backdate a cancellation of Exception between two dates then maybe the payment is no longer voluntary and NIM23003 is irrelevant. Either way, it seems that something due 5 years ago would - unless the error/diligence/bad HMRC advice exceptions apply - be regarded as L(ate) for benefit (=pension?) purposes (NIM23001). The payment is then regarded as being paid 42 days after the date it was actually paid, IOW 1.5 months from now. Would that then count as 2004/05 pension contribution, or a contribution to April/May 2011's Class 2 NICs, or just "some money we're owed"?

A counterargument is that the wording of NIM20005 implies that a due date only arises on a DD billing day or 28 days after a bill is issued. So I'm not actually "due" to pay anything for 2004/05 yet, and any cheque I send today is in fact an early payment even though it corresponds to a much earlier contribution year. I may be overthinking this...

themull1

You can pay for the 2004 tax year at the class 2 rate of £2.40, the payment will be classed as late paid thats why you would be paying £2.40 instead of the original rate at the time, but would still count towards your pension. the six week penalty of paying late is only when you claim sickness benefit. you cant cancel a certificate of exception except from a current date, the certificate is overwritten so a bill goes out for the relevant period.

mrwoolly

I am in a similar situation of being about to try to clear up gaps in my Class 2 contributions over the last 6 years and I have found the links and examples very helpful.
I did not even know it was possible to claim a Small Earnings Exception which would have applied to me for some years and I hope my ignorance of this may help.
I am very happy to pay off all at the current Class 2 rate of £2.40 (as suggested by themull1) and will propose this in my letter.

I am not completely sure to whom I should be writing for the best response - the DWP, HM Revenue and Customs, National Insurance Contributions Office, State Pension Forecasting Team. They all seem to be in the Newcastle on Tyne area.

Many thanks for the advice.

themull1

Hmrc, self employment services, bp3102, longbenton, newcastle upon tyne, ne98 1yx.

mrwoolly

Thank you again.