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

QrizB

DhwERbf689 said:

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

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?

I don't have an accountant, but if I did I'd expect them to know enough about their job that, on every tax return, they'd ask me (even if I've made a loss) "do you want to pay voluntary Class 2 NI so you get state pension entitlement?".
So why hasn't yours?

zedonk

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.

That sounds entirely normal to me. You've been paying class 2 contributions as you should, but when your business started making a loss, you didn't have to pay them and so you didn't. There will have been a box on your tax return you could tick to pay these voluntarily (and thus have those years qualify for the state pension), but it sounds as though your accountant didn't tick it and didn't discuss it with you.

I think it's really unlikely that you aren't registered as self-employed. Based on what you've said about your profits and your NI record, there's a much simpler explanation! 

DhwERbf689

What values were in the Class 2 section?

2016: Class 2 NICs due - £145.60
2017: Class 2 NICs due - £145.60
2018: Class 2 NICs due - £148.20
2019: Class 2 NICs due - £153.40
2020: Class 2 NICs due - £110.00

Then like I say I don't have copies downloaded of 2021 onwards and cannot see them anywhere on the HMRC website even when I follow the instructions on Google.

So I don't know if / what I paid from 2020 onwards but the past 4 years are the years I've been losing money.

DhwERbf689

You need to check your Self Assessment account to see if HMRC changed this part of your calculation?

Do you know where I would see this?

The HMRC website is the most confusing website on the history of the planet. It just opens page after page after page that has more links on it and I can never find the information I'm looking for.

DhwERbf689

I don't have an accountant, but if I did I'd expect them to know enough about their job that, on every tax return, they'd ask me (even if I've made a loss) "do you want to pay voluntary Class 2 NI so you get state pension entitlement?". So why hasn't yours?

I do not recall ever being asked that. I have no idea why my accountant would not ask me that if it was important but as I'm hearing about this for the first time today then it seems unlikely I was asked.

That sounds entirely normal to me. You've been paying class 2 contributions as you should, but when your business started making a loss, you didn't have to pay them and so you didn't. There will have been a box on your tax return you could tick to pay these voluntarily (and thus have those years qualify for the state pension), but it sounds as though your accountant didn't tick it and didn't discuss it with you. I think it's really unlikely that you aren't registered as self-employed. Based on what you've said about your profits and your NI record, there's a much simpler explanation! 

So basically I should been paying these class 2 contributions voluntarily but my accountant never thought to mention it to me?

Do I just now go ahead and pay what the HMRC website is telling me based on my missed contributions or do I have to double check this? And if so who do I need to speak to in order to get confirmation?

I'm not sure I'm trusting my accountant to give me the right answers currently. 

QrizB

DhwERbf689 said:

That sounds entirely normal to me. You've been paying class 2 contributions as you should, but when your business started making a loss, you didn't have to pay them and so you didn't. There will have been a box on your tax return you could tick to pay these voluntarily (and thus have those years qualify for the state pension), but it sounds as though your accountant didn't tick it and didn't discuss it with you. I think it's really unlikely that you aren't registered as self-employed. Based on what you've said about your profits and your NI record, there's a much simpler explanation! 

So basically I should been paying these class 2 contributions voluntarily but my accountant never thought to mention it to me?

In essence yes. That's what I'd expect my accountant to do for me, if I had one.

DhwERbf689 said:

I'm not sure I'm trusting my accountant to give me the right answers currently. 

I do think you need to start with your accountant. At the very least, you can make sure that your Class 2s for this year are covered, and you/he might be able to amend your previous tax returns and pay some previous years too.

DhwERbf689

Thanks, I'm expecting to hear from him in the next day or two to sign of the current self assesment so I'll bring it up / check this years and see where we stand.

DhwERbf689

So an update on this if anyone cares...

Finally got some sort of answer from my accountant today on this though I'm no clearer on what any of it means and even he doesn't seem to know the answer for sure...

He said "you can pay Class 2 even if you're making a loss but I don't know if paying class 2 on loss making years qualifies towards state pension as HMRC guidelines on this is unclear"  

Why is it so many people here seem to understand these contributions and what they mean (at least that's the impression I get) but my accountant isn't clear and thinks HMRC guidelines are unclear?

Very confused now.

Dazed_and_C0nfused

DhwERbf689 said:

So an update on this if anyone cares...

Finally got some sort of answer from my accountant today on this though I'm no clearer on what any of it means and even he doesn't seem to know the answer for sure...

He said "you can pay Class 2 even if you're making a loss but I don't know if paying class 2 on loss making years qualifies towards state pension as HMRC guidelines on this is unclear"  

Why is it so many people here seem to understand these contributions and what they mean (at least that's the impression I get) but my accountant isn't clear and thinks HMRC guidelines are unclear?

Very confused now.

Maybe your accountant needs some refresher training.

Or a course in using Google.

https://www.icaew.com/insights/tax-news/2022/april-2022/nic-for-the-self-employed-a-clarification-and-reminder-following-the-spring-statement

DhwERbf689

Thanks for the link, I just got confused even more when I read it but I'll certainly pass it onto him.