Can voluntary class2 really buy a years pension contribution for circa £358.6 if you earn £1000?

itsmeagain

Hi there.

I've recently retired aged 55 and my forecast shows that i'm around £10 per week or 2 years short of full state pension with 13 years left.
I now earn a DB pension of circa £30kPA and pay 20% tax with no further NI.
I called up HMRC and they explained that I could buy the 2 years shortfall for circa £800 per year.

Then my daughter suggested that I could earn a profit of £1000 (say ebay sales) or she could pay me £1000 for the kitchen that I'm fitting her. She thinks that £1000 income would qualify me to pay voluntary class2 at £3.05 per week and then have to pay 20% on that £1000 income, thus paying £200 + 52 x £3.05 = £358.6?

Is this correct or a misunderstanding? Are there any other cheap ways of getting a years state pension contribution?

QrizB

If you arre self-employed, you're self-employed. Trading on eBay or working as a kitchen fitter would both count, IMO.

itsmeagain said:

Then my daughter suggested that I could earn a profit of £1000 (say ebay sales) or she could pay me £1000 for the kitchen that I'm fitting her.

If you do either of those you should register as self-employed and pay any necessary tax etc. (although lots of people don't).

https://www.gov.uk/set-up-self-employed

itsmeagain

QrizB said:

If you arre self-employed, you're self-employed. Trading on eBay or working as a kitchen fitter would both count, IMO.

itsmeagain said:

Then my daughter suggested that I could earn a profit of £1000 (say ebay sales) or she could pay me £1000 for the kitchen that I'm fitting her.

If you do either of those you should register as self-employed and pay any necessary tax etc. (although lots of people don't).

https://www.gov.uk/set-up-self-employed

Thanks for explaining that i'd be self employed and need to register as such. However... I'm not sure if this answers the years 'cheap' pension qualifying contribution question?

QrizB

itsmeagain said:

QrizB said:

If you arre self-employed, you're self-employed. Trading on eBay or working as a kitchen fitter would both count, IMO.

itsmeagain said:

Then my daughter suggested that I could earn a profit of £1000 (say ebay sales) or she could pay me £1000 for the kitchen that I'm fitting her.

If you do either of those you should register as self-employed and pay any necessary tax etc. (although lots of people don't).

https://www.gov.uk/set-up-self-employed

Thanks for explaining that i'd be self employed and need to register as such. However... I'm not sure if this answers the years 'cheap' pension qualifying contribution question?

If you're self-employed, you pay self-employed NI.

https://www.gov.uk/self-employed-national-insurance-rates

If your self-employment makes less than £6725 profit a year, you can pay voluntary Class 2 contributions:

https://www.gov.uk/voluntary-national-insurance-contributions/who-can-pay-voluntary-contributions

itsmeagain

QrizB said:

itsmeagain said:

QrizB said:

If you arre self-employed, you're self-employed. Trading on eBay or working as a kitchen fitter would both count, IMO.

itsmeagain said:

Then my daughter suggested that I could earn a profit of £1000 (say ebay sales) or she could pay me £1000 for the kitchen that I'm fitting her.

If you do either of those you should register as self-employed and pay any necessary tax etc. (although lots of people don't).

https://www.gov.uk/set-up-self-employed

Thanks for explaining that i'd be self employed and need to register as such. However... I'm not sure if this answers the years 'cheap' pension qualifying contribution question?

If you're self-employed, you pay self-employed NI.

https://www.gov.uk/self-employed-national-insurance-rates

If your self-employment makes less than £6725 profit a year, you can pay voluntary Class 2 contributions:

https://www.gov.uk/voluntary-national-insurance-contributions/who-can-pay-voluntary-contributions

Thanks. Still not explicit though. I need slapping with a wet fish!

If read read that correctly I can be self employed and earn nothing, pay class 2 and get a years contribution for £158. Do you agree?

Your situation	Which class to pay
Self-employed with income of £1,000 or less	Class 2 or Class 3 - they count towards State Pension and different benefits

Secret2ndAccount

The answer is yes. 
You do have to be self employed; that's between you and HMRC. Lots of documents and opinions on the web.
If your daughter pays you £999 you can claim Trading Allowance of £999 and make zero profit, so zero extra income tax.
If your takings exceed £1,000, you have to register as self employed by telling HMRC; you are then obliged to complete a tax return. Below £1,000 gross income, all of this can be avoided, though I don't know how HMRC would then know that you are eligible to pay Voluntary Class 2.

Trading allowance is a simplification for small businesses. Rather than itemising your expenses, you can just use up to £1,000, or your income, whichever is less.

itsmeagain

Secret2ndAccount said:

The answer is yes. 
You do have to be self employed; that's between you and HMRC. Lots of documents and opinions on the web.
If your daughter pays you £999 you can claim Trading Allowance of £999 and make zero profit, so zero extra income tax.
If your takings exceed £1,000, you have to register as self employed by telling HMRC; you are then obliged to complete a tax return. Below £1,000 gross income, all of this can be avoided, though I don't know how HMRC would then know that you are eligible to pay Voluntary Class 2.

Trading allowance is a simplification for small businesses. Rather than itemising your expenses, you can just use up to £1,000, or your income, whichever is less.

So in principle, does that mean that with little effort, I can buy a years contribution for just £158 if I make no profit?

Malthusian

Selling a view old DVDs on eBay is not "trading", otherwise nobody would pay class 3 contributions. You would have to do some actual buying and selling. Which to me would seem like a disproportionate amount of effort for someone who has presumably already put in a lot of hard work to retire at 55.

I am dubious about whether your daughter paying you £1,000 to do her kitchen (which it sounds like you were planning to do for free) would be considered self-employment. It sounds more like an informal arrangement between family to me, a reciprocal gift.

On the other hand you might get away with it. Personally I would just pay the extra £640 for class 3.

Or consider whether I could turn any of my interests into a genuine hobby business. Which would have the double benefit of earning some actual money, rather than relieving your child of money you don't want or trying to make a profit in a saturated market that you don't have any real interest in.

Dazed_and_C0nfused

itsmeagain said:

Secret2ndAccount said:

The answer is yes. 
You do have to be self employed; that's between you and HMRC. Lots of documents and opinions on the web.
If your daughter pays you £999 you can claim Trading Allowance of £999 and make zero profit, so zero extra income tax.
If your takings exceed £1,000, you have to register as self employed by telling HMRC; you are then obliged to complete a tax return. Below £1,000 gross income, all of this can be avoided, though I don't know how HMRC would then know that you are eligible to pay Voluntary Class 2.

Trading allowance is a simplification for small businesses. Rather than itemising your expenses, you can just use up to £1,000, or your income, whichever is less.

So in principle, does that mean that with little effort, I can buy a years contribution for just £158 if I make no profit?

That's a matter of opinion.

You have to be self employed.

And register as such with HMRC.

And complete (at least) two Self Assessment returns.

And pay the the Class 2 NIC by 31 January after the end of each tax year (part of your Self Assessment liability).

For plenty of people that wouldn't amount to "little effort".  Especially the completing two tax returns part.

Also, not sure why you think you need to "earn" £1,000 each year?  Whatever you actually mean by that.  Self employment income starts with turnover and ends with profit (or loss).

xylophone

Are there any other cheap ways of getting a years state pension contribution?

Part time work?

https://www.litrg.org.uk/tax-guides/employment/what-national-insurance-do-i-pay-employee#:~:text=If you are employed part,effect on your NIC liability.

triplea35

xylophone said:

Are there any other cheap ways of getting a years state pension contribution?

Part time work?

https://www.litrg.org.uk/tax-guides/employment/what-national-insurance-do-i-pay-employee#:~:text=If you are employed part,effect on your NIC liability.

Also look at National Insurance credits for looking after grandchildren if applicable : Specified Adult Childcare credits: fact sheet - GOV.UK (www.gov.uk)