Class 2 NI Contributions

dave_ave

On another forum a contributor wrote the following about paying NI in order to get another year of contributions towards the state pension:

"Say your friend is a seller on eBay or a dog walker.
If she turns over £100 a year and does a tax return, as long as the amount earned is under £1,000 per year there is no tax to be paid. She can pay a years class 2 NI which costs around £150 a year. As long as that avenue is available, that is the one she should take"

Can anyone confirm this is correct because in the information I have read on line profits need to exceed approximately £6,500 to pay Class 2 NI?

My wife is not in work through ill health, but she does make money from eBay, so I wonder if this is an avenue she could use to make NI contributions.

BoGoF

That is the 'normal' threshold. You can voluntarily elect to pay Class 2 if self-employed below the threshold.

dave_ave

BoGoF wrote: »

That is the 'normal' threshold. You can voluntarily elect to pay Class 2 if self-employed below the threshold.

Many thanks BoGoF

On-the-coast

I read that thread referenced in post #1 too... and found it surprising, so this thread interests me.

My spouse is about 7yrs short of full maximum state pension contributions.

Spouse stopped full-time work about 3 years ago. And during that time has made a few £100’s per year informally self employed (certainly below the £1000 threshold each year).
Spouse has also started some relatively seasonal work that occasionally results in NI being deducted (last FY for example, about £20 of NI was paid..... probably more this year, but definitely considerably less than a full year of NI contributions)

So my question is:
Can i / should i suggest that spouse retrospectively registers with tax office as self employed and then pay the class 2 NI? For the last 2 tax years?
What’s the impact of being both employed and self-employed.. which is what my spouse is doing... does the paid employed NI offset the Class 2 NI? (I don’t really understand class 2 NI)

And... in general why would anyone who’s capable of offering a few things for sale on eBay or etsy (fore example) not do this and pay £150 of class 2 NI versus paying £700+ of NI contributions for what I assume is the same net effect?.... is there no lower limit to what constitutes self employed?

Not trying to hijack the thread, but to expand upon it.
Thanks for your insights.

liz_bartun

On-the-coast wrote: »

I read that thread referenced in post #1 too... and found it surprising, so this thread interests me.

My spouse is about 7yrs short of full maximum state pension contributions.

Spouse stopped full-time work about 3 years ago. And during that time has made a few £100’s per year informally self employed (certainly below the £1000 threshold each year).
Spouse has also started some relatively seasonal work that occasionally results in NI being deducted (last FY for example, about £20 of NI was paid..... probably more this year, but definitely considerably less than a full year of NI contributions)

So my question is:
Can i / should i suggest that spouse retrospectively registers with tax office as self employed and then pay the class 2 NI? For the last 2 tax years?

The £1000 allowance means you don't have to register for self assessment if your trading income is less than £1000. If spouse does register they'll have to declare the profit and (possibly) pay fines for late submission of the 17/18 tax return.

What’s the impact of being both employed and self-employed.. which is what my spouse is doing... does the paid employed NI offset the Class 2 NI? (I don’t really understand class 2 NI)

It depends on how much Class 1 (PAYE) NI has been paid as to whether it would offset the need for Class 2.

And... in general why would anyone who’s capable of offering a few things for sale on eBay or etsy (fore example) not do this and pay £150 of class 2 NI versus paying £700+ of NI contributions for what I assume is the same net effect?.... is there no lower limit to what constitutes self employed?

The 'self-employment' has to be classed as a trade. You can't just sell a few of your belongings and claim it's a business, because it isn't. Class 2 NI does not cover you the same as Class 1 PAYE NI - https://www.gov.uk/national-insurance/what-national-insurance-is-for.

It might be suggested spouse pays voluntary Class 3 contributions instead. https://www.gov.uk/pay-voluntary-class-3-national-insurance

Not trying to hijack the thread, but to expand upon it.
Thanks for your insights.

Hope that helps

00ec25

On-the-coast wrote: »

Can i / should i suggest that spouse retrospectively registers with tax office as self employed and then pay the class 2 NI? For the last 2 tax years?
What’s the impact of being both employed and self-employed.. which is what my spouse is doing... does the paid employed NI offset the Class 2 NI? (I don’t really understand class 2 NI)

the £1,000 allowance is in respect of trading income and is applicable from April 17 onward

that said, it does not appear to be relevant in your wife's case anyway, since her total income appears to be below the personal allowance if she stopped working 3 years ago?
You can't face a penalty if there is no tax due because there is no taxable income after allowance

1. is wife's income more than personal allowance? If not there is no risk. If yes, then by what you write, it will be less than the trading allowance anyway, so again no tax due

2. penalties: there is no penalty for failing to tell HMRC you want to voluntarily pay class 2 because your self employed earnings are below the profits threshold
https://www.gov.uk/hmrc-internal-manuals/national-insurance-manual/nim23501

3. you cannot stop and start self employment on a whim to game NI. You can opt to pay Class 2 for the entire period of self employment or for none of it. You can't opt to pay a bit of class 2 and offset the rest with the Class 1 employment NI

4. the class 2 will be being paid "late", so will be at the higher rate
https://www.gov.uk/hmrc-internal-manuals/national-insurance-manual/nim23600
(although that simply means at the rate applicable to the tax year in which they are paid, so only a few pennies extra in reality)

On-the-coast wrote: »

And... in general why would anyone who’s capable of offering a few things for sale on eBay or etsy (fore example) not do this and pay £150 of class 2 NI versus paying £700+ of NI contributions for what I assume is the same net effect?.... is there no lower limit to what constitutes self employed?

there is no lower limit, but there is a clear definition of what constitutes "trading" and therefore the status of being self employed.

As set out in the preamble to the trading allowance itself: trading is an activity undertaken with w view to making a profit and involves buying as well as selling. So, as others said, selling off possessions on ebay is not trading. Buying stock with the intention to sell at a profit is trading.