National Insurance class 2 query

Hatamoto

Hi all,

I recently completed my first tax return as a self employed person. My profits were below £5,965 this time and so I opted to pay NI class 2 voluntarily.

I registered for self assessment and started trading on 3rd November 2015. (less than 6 months trading in the 2015/16 tax year)

I used that date in my tax return.

My voluntary NI class 2 bill was less than half as much as I expected to be paying. Is this because I have only been trading for less than half of a tax year?

If it is, is it worth paying and does it count towards my state pension?

Thank you

H

Savvy_Sue

Were you also paying NI contributions through employment, or obtaining credit through claiming benefits?

If no to both the above, then the answer is 'it might be worth paying' as only full years count towards your pension, but it's worth working out how many years you already have / expect to have.

If yes, then not worth paying as you already have the benefit.

Hatamoto

Thanks for the reply Savvy_Sue.

It's definitely no to both the above.

Tell me if any of this is naive or incorrect on my part because I've been churning it over since my first post on this subject:

I mistakenly assumed I could voluntarily pay a full year of class 2 at £2.80 x 52.

I started working on Nov 3rd, which is 22 weeks and 1 day before the end of the tax year. (they would count that as 23 weeks, I'm sure)

My bill was £64.40

64.40 / 23 weeks = £2.80

So I'm almost positive that I've been billed for just the weeks I've been trading. (because I told them I started in November)

I'd like to make the rest up and make it count, if that's even possible?

Is that something you think might be possible?

Thank you again.

H

grey_gym_sock

yes, i think you're correct that the bill is for 23 weeks.

were you also employed at any time during the 2015-16 tax year? because if you had any NI contributions from employment, that could be combined with 23 weeks'-worth from self-employment, to get you (nearer to) a full year.

the same thing goes if you were claiming certain kinds of benefits for part of the tax year.

otherwise you could choose to pay class 4 contributions to make up the other 29 weeks, but these are more expensive than class 2 - £14.10 a week, instead of £2.80.

but if you can't/don't want to use any of those routes to completing the year, you'd be better off electing not to pay the class 2 contributions, either (and you could amend your tax return to do that).

booksurr

grey_gym_sock wrote: »

otherwise you could choose to pay class 4 contributions to make up the other 29 weeks, but these are more expensive than class 2 - £14.10 a week, instead of £2.80.

Only class 2 counts towards state pension "Class 4 contributions paid by self-employed people with a profit over £8,060 don’t usually count towards state benefits."
https://www.gov.uk/national-insurance/what-national-insurance-is-for
as he has a shortfall on the year he'll have to make up the difference using class 3 voluntary

grey_gym_sock

booksurr wrote: »

class 4 do NOT count towards state pension. Only class 2 counts towards state pension "Class 4 contributions paid by self-employed people with a profit over £8,060 don’t usually count towards state benefits."
https://www.gov.uk/national-insurance/what-national-insurance-is-for
as he has a shortfall on the year he'll have to make up the difference using class 3 voluntary

oops - i said "class 4" when i meant "class 3".

Hatamoto

Thanks to everyone for the help

I haven't been in employment in any capacity during the 15/16 tax year, other than self employed from Nov 3rd 2015. I was also not claiming any benefits.

Class 3 seems to be the way then @ £14.10 a week, to make it up.

I should have registered at the start of the financial year, it seems. Then I could have paid for a full year of Class 2 and it would count.

Not the best of news, eh?

Savvy_Sue

I am not completely up to date on this, but ... IMO it's worth working out
a) how many years there are until you reach the projected state pension age,
b) how many years you need to make contributions for in order to receive a full state pension (taking into account any years for which you have already made contributions), and
c) how good your chances are of being employed or profitably self-employed for the desired number of years.

Someone else will point you in the right direction for checking this information, or head over to the Pensions boardwhere you'll find links to useful articles.

Because you don't have to pay NI contributions for every single year between your 16th birthday and your state retirement date in order to get a full pension, so if you're young you've got time to make it up, or if you've already got a complete or nearly complete record for years you've already worked and expect to keep that record up you shouldn't lose out.

And there is a period in which you can backdate 'missing' years, so if you expect to be in a better position to pay in a year's time (or more, not sure of exact period), then you could wait.

Of course, the goal posts keep shifting, but I didn't, for example, make up the years when I was a student, but I did make up some of the years when I had a low self-employed income, because that enabled me to claim maternity allowance (which was a good deal more than the cost of the contributions ...)

Hatamoto

Thank you again.

I have enough qualifying years already banked and enough working years left to make it without buying years back or making this one count, but not if they up the amount of qualifying years again. So, I'm anxious to make this one count and move on from there.