Confused about all this talk of Class 2, Class 3, Class 4 contributions for self employed.

DhwERbf689

So I'm self employed for the past 10 or 11 years now.

For the first couple of years in starting my business I wasn't earning much, then in the middle I was earning a decent amount of money, and then the last 4 years or so not again.

So when I heard about paying voluntary contributions to my pension I thought I better check it out as I knew I'd likely be missing a few years due to my up and down earnings.

So looking at the HRMC website it says the following...

"You need to continue to contribute National Insurance to reach your forecast

Estimate based on your National Insurance record up to 5 April 2024: £74.51 a week"

So I'm definitely short.

The 'National Insurance Record' page shows I've not made my full contributons on the following years:

2023-2024 - £907.40 contribution needed.

2022-2023 - £824.20  contribution needed.

2021-2022 - £800.80  contribution needed.

2020-2021 - £795.60  contribution needed.

2013-2014 - £824.20  contribution needed.

2012-2013 - £301.15  contribution needed.

2011-2011 - £332.85  contribution needed.

2009-2010 - £31.70  contribution needed.

2008-2009 - £126.80  contribution needed.

2007-2008 - £681.55  contribution needed.

2006-2007 - £31.70  contribution needed.

The total sum missing for those years is £5,657 when combined.

I got the reference number from HMRC a while back and was just about to go pay the full contributions today when I read an article on MoneySavingExpert talking about how this all applied to Self Employed and it started talking about Class 2, Class 3 and Class 4 contributions and suddenly that confused me.

Are these different "Class" contributions something I need to understand or do I just go ahead and pay what HMRC has stated (i.e. the £5,657 for the years listed above) and the correct pension contributons will be made and it's done with?

Or do I need to know which "Class" contributions I'm making when I go to pay?

Because if it does ask I have no clue which I should be choosing and no amount of reading around the topic in the last 2hrs has helped me understand it, I'm more confused now than ever. 

Thanks

molerat

The NI record only shows class 3 costs whatever your eligibility. You need to speak to HMRC to decide which class of contributions you are eligible to pay for any particular year, it can be fairly complex as for some years if you failed to register for class 2 even though self employed you may not be eligible to pay.  Which tax year do you reach state retirement and what do you intend doing up to then as it looks like you need another 24 years to get to the max ?  There are obviously some easy wins in that pile which seem to be before your SE - which tax year did you start in ?.  The big problem though is you are up against the April cut off clock which will make all years 2018-19 and earlier no longer available.

DhwERbf689

I spoke to HMRC on the phone to get the reference number but they didn't tell me anything about which class I was eligible to pay - they just went though the years I had missing contributions (which I could see myself on the HMRC website) and tallied up the total then gave me the reference number so I could make the payment online.

for some years if you failed to register for class 2 even though self employed you may not be eligible to pay.  

So I had to register specifically for something at some point? How is that done?

I'm not sure I EVER registered specifically for anything. Don't recall doing that. 

Which tax year do you reach state retirement and what do you intend doing up to then as it looks like you need another 24 years to get to the max ?

I'm currently 40 and yes looked like I need about another 24 years so I'd like to pay something now whilst I have money and get a little catch up on it.

There are obviously some easy wins in that pile which seem to be before your SE - which tax year did you start in ?

Which tax year did I start being self employed in?

I think it was 2013-2014.

The big problem though is you are up against the April cut off clock which will make all years 2018-19 and earlier no longer available.

Why is this a problem? April is a while away yet and I plan to pay this week.

Dazed_and_C0nfused

Is it possible that you registered for Self Assessment with HMRC.  But didn't register as self employed with HMRC?

Class 2 NI, which is far cheaper than Class 3, is usually paid as part of your Self Assessment liability but only when you are registered as self employed.

You can ignore Class 4, that has no relevance for State Pension purposes.

molerat

You need to tell HMRC you are self employed and they should then be able to tell you what you need to pay.  You should be safe for class 2 eligibility for the years 20-21 onwards, 13-14 could be problematic on that score, 06-07, 08-09 and 09-10 are cheap class 3 so that makes 7 leaving 17 needed with 28 or so left to get there.

So I had to register specifically for something at some point? How is that done?

https://www.gov.uk/pay-class-2-national-insurance

For 23-24 if your profits are more than £6725 but less that £12570 you will be credited with class 2 without needing to pay, above £12570 you will need to pay.  From 24-25 if your profits are above £6725 you will be credited with no need to pay.
https://www.att.org.uk/technical/news/class-2-national-insurance-whats-changing-april-2024

Why is this a problem? April is a while away yet and I plan to pay this week.

The phone lines are getting very busy due to this impending cut off and people are reporting holding for a long time and getting cut off.  You may also need to speak to DWP before HMRC will allow you to pay, another long hold.  No doubt Martin will be mentioning it again which has previously made the website fall over and the phone lines absolutely swamped.  

https://www.bbc.co.uk/news/articles/cn4zjnd2llyo

HMRC has denied running a "deliberately poor" phone service in an attempt to push taxpayers to seek help online instead.

Nearly 44,000 customers were cut off without warning after being on hold for more than an hour last year, a report by a committee of MPs found.

It warned HMRC's service had got even worse since then and urged the tax authority to take responsibility for failing its customers.

DhwERbf689

Dazed_and_C0nfused said:

Is it possible that you registered for Self Assessment with HMRC.  But didn't register as self employed with HMRC?

Class 2 NI, which is far cheaper than Class 3, is usually paid as part of your Self Assessment liability but only when you are registered as self employed.

You can ignore Class 4, that has no relevance for State Pension purposes.

You're saying I may have not been registered as self employed all this time with HMRC? Why would I be submitting a self assesment every year and manually paying my taxes if I wasn't self employed?

Surely those things are one and the same?

I pay my self assesment online every year via the HMRC website so I obviously registered that I was self employed all those years ago but I don't specifically recall registering FOR CLASS 2 CONTRIBUTIONS is what I was saying.

Is that something you have to register for seperately?

DhwERbf689

molerat said:

You need to tell HMRC you are self employed and they should then be able to tell you what you need to pay.  You should be safe for class 2 eligibility for the years 20-21 onwards, 13-14 could be problematic on that score, 06-07, 08-09 and 09-10 are cheap class 3 so that makes 7 leaving 17 needed with 28 or so left to get there

Well HMRC must know I'm self employed as I've been submitting a self assesment for the last 10 years and paying taxes. So surely when I called them to get the reference number a couple of months back they would have seen that on their screen?

But please don't tell me that for the last 10 years I've not been registered for something else (i.e. class 2 contributions) that I should have been because of some bizarre system where even though you've registered as self employed you had to then go register for something else on top of that, and no one ever thought to tell me?

I'm looking at those links you've shared, thanks for that, however I'm just more confused now than when I started. 

QrizB

DhwERbf689 said:

 I pay my self assesment online every year via the HMRC website

Do you complete the pages for self-employment? If you do, you'll see there's a tick box for paying voluntary Class 2 contributions in the event that you've not earned enough to get to the LEL (that £6725 number quoted above).

Have you not noticed it?

How much did you make in 23/24? If you look at your tax return for 23/24, can you find that box?

Dazed_and_C0nfused

DhwERbf689 said:

Dazed_and_C0nfused said:

Is it possible that you registered for Self Assessment with HMRC.  But didn't register as self employed with HMRC?

Class 2 NI, which is far cheaper than Class 3, is usually paid as part of your Self Assessment liability but only when you are registered as self employed.

You can ignore Class 4, that has no relevance for State Pension purposes.

You're saying I may have not been registered as self employed all this time with HMRC? Why would I be submitting a self assesment every year and manually paying my taxes if I wasn't self employed?

Surely those things are one and the same?

I pay my self assesment online every year via the HMRC website so I obviously registered that I was self employed all those years ago but I don't specifically recall registering FOR CLASS 2 CONTRIBUTIONS is what I was saying.

Is that something you have to register for seperately?

The current situation is that you have to register both for Self Assessment and as self employed. 

If you don't register as self employed one of the problems that occurs is you don't get the option to pay Class 2 as part of your Self Assessment liability.  You would still be charged Class 4 NI (if your profits are large enough) but that doesn't count for State Pension purposes.

https://www.gov.uk/register-for-self-assessment/y/you-re-self-employed-for-example-a-sole-trader/no-i-m-registering-for-the-first-time

DhwERbf689

QrizB said:

DhwERbf689 said:

 I pay my self assesment online every year via the HMRC website

Do you complete the pages for self-employment? If you do, you'll see there's a tick box for paying voluntary Class 2 contributions in the event that you've not earned enough to get to the LEL (that £6725 number quoted above).

Have you not noticed it?

How much did you make in 23/24? If you look at your tax return for 23/24, can you find that box?

My accountant fills out the self assesment and I simply pay it.

I have no idea if the boxes have been ticked or not. Not once do I ever recall anyone mentioning this to me. 

I'm on HMRCs website now and I can't even locate previously submitted self assesments or any option to see the one that is due by the end of the month (which has not been submitted yet as waiting on accountant giving final approval this week).

Where do I find this stuff?

DhwERbf689

If you don't register as self employed one of the problems that occurs is you don't get the option to pay Class 2 as part of your Self Assessment liability.  You would still be charged Class 4 NI (if your profits are large enough) but that doesn't count for State Pension purposes.

So there's a situation here where for the last 10 years I've been paying, on the years where I've earned enough money, contributions that do not count towards the state pension?

If so, what do they count towards?

I'm so bamboozled right now.