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

DhwERbf689

When I go on my "National Insurance record" page on the HMRC website on the years when I was self employed and it says I paid a "full year" it says "You have contributions from: Self-employment 52 weeks".

Doesn't that suggest I'm registered for what I should be?

Dazed_and_C0nfused

DhwERbf689 said:

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.

Class 4 NI is often considered an extra tax.

https://www.litrg.org.uk/working/self-employment/nic-self-employed#5

DhwERbf689

Class 4 NI is often considered an extra tax.

What does that mean? I'm sorry I do not understand.

squirrelpie

It sounds like you should ask your accountant what he has paid for NICs for the past years.

Read the link Dazed_and_Confused posted or ask your accountant if you want to understand more about Class 4.

DhwERbf689

For some reason I can't find copies of my self assesments for recent years on my laptop and the archaic HMRC website just seems to send me round in a loop and I can never find ANYTHING on it.

But looking at each self assesment I do have for tax years 2016, 2017, 2018, 2019, and 2020 they have a section for both "Class 4 NICs due" and "Class 2 NICs due" and both have different numbers in them then there's a "Pension charges due" box a couple of lines down and this is always blank.

What does this all mean? 

QrizB

DhwERbf689 said:

But looking at each self assesment I do have for tax years 2016, 2017, 2018, 2019, and 2020 they have a section for both "Class 4 NICs due" and "Class 2 NICs due" and both have different numbers in them then there's a "Pension charges due" box a couple of lines down and this is always blank.
What does this all mean? 

If you earn more than the Small Profits Threshold (currently £6725pa) you pay Class 2. This is a fixed amount per week. It's the Class 2 NI that qualifies you for the State Pension.

If you earn more than the Lower Profits Limit (currently £12570pa) you also pay Class 4. This is a percentage.

I can't help with the "pension charges due" box, my wife's the self-employed one and I don't recall seeing that on her tax account. Sorry.

Gov page with thresholds and rates for recent years:
https://www.gov.uk/government/publications/rates-and-allowances-national-insurance-contributions/rates-and-allowances-national-insurance-contributions

To be honest I agree with @squirrelpie above; you've got an accountant, and presumably you pay them. They should be able to explain what NI you're paying and why HMRC don't think you've paid enough to qualify for State Pension for the past decade. (Mrs QrizB doesn't have an accountant and we do hers ourselves. So far so good.)

DhwERbf689

To be honest I agree with @squirrelpie above; you've got an accountant, and presumably you pay them. They should be able to explain what NI you're paying

I've been assigned a new accountant (it's a big firm) just recently and even though my accounts have been up to date for months and I told him he could crack on with the self assesment back in October, reminded him again in Novemeber AND December TWICE he still has not yet finalized them and here we are in the final 10 days of the tax year.

So I'll need to wait till he's sorted this out before I give him anything else to figure out as otherwise this years tax return might never get submitted. 

why HMRC don't think you've paid enough to qualify for State Pension for the past decade.

I'm not sure if they are saying that though.

It shows on the HMRC website that for the past 4 years, where I've been losing money and not earned anything, I've not made any contributions. Isn't that normal?

On the years prior to that where I was earning it shows I've contributed and paid the full amount neccessary to qualify.

I've read all these links everyone has posted and it just confuses me even more when I read this. It's all too nuanced and often like reading double dutch.

Dazed_and_C0nfused

DhwERbf689 said:

Class 4 NI is often considered an extra tax.

What does that mean? I'm sorry I do not understand.

Literally what it says.  Class 4 National Insurance is simply an extra amount that you have to pay of your business profits are above the relevant threshold.

Class 4 National Insurance isn't relevant for State Pension purposes and doesn't give you an entitlement to any other benefits.

Dazed_and_C0nfused

DhwERbf689 said:

For some reason I can't find copies of my self assesments for recent years on my laptop and the archaic HMRC website just seems to send me round in a loop and I can never find ANYTHING on it.

But looking at each self assesment I do have for tax years 2016, 2017, 2018, 2019, and 2020 they have a section for both "Class 4 NICs due" and "Class 2 NICs due" and both have different numbers in them then there's a "Pension charges due" box a couple of lines down and this is always blank.

What does this all mean? 

Class 4 NI is just part of your Self Assessment calculation, it isn't relevant as far as your State Pension is concerned.

Class 2 NI is important for State Pension purposes and qives you qualifying years.

"Pension charges due" is probably a charge that can be imposed if you exceed the annual allowance for pension contributions.  It has nothing whatsoever to do with National Insurance or qualifying years for State Pension purposes.

What values were in the Class 2 section?

You need to check your Self Assessment account to see if HMRC changed this part of your calculation?  This can happen when you aren't registered as self employed. 

The fact that you have completed a Self employment page on your return isn't enough, you have to be registered as self employed as well.  HMRC are known to change your calculation to remove the Class 2 NI element if you aren't registered as self employed.

It does beg the question as to what you are paying your accountant for, they should normally be helping you with this.  Subject to what is in your letter of engagement of course.

squirrelpie

"It does beg the question as to what you are paying your accountant for, they should normally be helping you with this."

Exactly! If the OP feels they can't ask their accountant a question, it's time to find another accountant, IMHO!

Go to your accountant's boss (or his boss ...) and tell them you're thinking of changing firms unless they get their act together.