Self-employed must register properly to avoid National Insurance snag hitting pensions

HMRC will not make changes to its IT systems to prevent self-employed people from under-paying Class 2 National Insurance contributions.

Concerns have been raised with HMRC by professional bodies representing self-employed agents over instances where Class 2 National Insurance Contributions (NICs) have not been included in a customer’s Self Assessment (SA) calculation, and as a result go unpaid.

Paying Class 2 NICs is a legal requirement and also protects a person’s future entitlement to State Pension.

HMRC states that most people are correctly registered for SA and Class 2 NICs, and do have their Class 2 NICs included in their SA calculation.

Where this doesn’t happen, HMRC says the underlying reason is that the self-employed person has not correctly registered as self-employed.  They have registered for SA (on the CESA system) but not registered for Class 2 NICs (on the NPS system). As it is the NPS system that determines the amount of Class 2 NICs due this prevents Class 2 being included in SA calculations.

The situation has attracted criticism from the press – see this report in the Guardian.

However, HMRC says all things considered changing the IT system is not a priority.

“While HMRC understands why changes to our IT systems to deliver an automated solution would be desirable any such solution is prohibited by cost and plans in place for the future of the IT systems concerned.”

Agents and self-employed people are being urged to correctly follow the existing self-employed registration process by completing the correct registration form, which will ensure that the self-employed are registered on both the NPS and CESA systems.

Completing form SA1 only results in registration for Self Assessment tax and Class 4 NICs whilst completing form CWFI results in registration Self Assessment tax, Class 4 NICs and Class 2 NICs.

HMRC says it is “keen to make it clearer and easier for the existing process to work and will continue to work with Professional Bodies to help us improve guidance and communications”.

Further information

• CWF1 online structured email form
• Self-Assessment (SA) and Class 2 NICs – Agent Update 73 (link to https://www.gov.uk/government/publications/agent-update-issue-73)
• National Insurance contributions and the link to State Pension and benefits – Agent Update 74 (link to https://www.gov.uk/government/publications/agent-update- issue-74)
• HMRC Community Forums Knowledge Base https://community.hmrc.gov.uk/knowledgebase/category/?id=CAT-01056

David Nunn is a former Content Manager at AAT.