Recent changes in the way Class 2 National Insurance is collected may mean you are paying more than you are required to.
Class 2 National Insurance contributions are compulsory for self-employed people earning more than £6,365 a year, although they can be paid voluntarily if the tax payer has gaps in their National Insurance record.
Class 2 National Insurance is calculated at a flat rate per week – currently £3 per week for the 2019/20 tax year – and becomes payable as soon as HMRC are notified that self-employment has commenced.
For many years, Class 2 National Insurance was collected by direct debit every month for all self employed people. However, starting from the 2015/16 tax year, for most people it is being collected through self assessment, meaning that the annual liability is paid as part of the 31 January and 31 July payments each year. However, the following categories of tax payer do not have their Class 2 National Insurance collected through self assessment, and continue with the monthly direct debit:
- an examiner, moderator, invigilator or person who set exam questions
- running a business involving land or property
- a minister of religion who does not receive a salary or stipend
- living abroad and paying voluntary Class 2 contributions
- a person who makes investments – but not as a business and without getting a fee or commissiona non-UK resident who’s self-employed in the UK
- working abroad
We have recently discovered that this may have had an unexpected consequence for those people who were self employed and also had rental income.
If you were paying Class 2 National Insurance under the direct debit system and had rental income, HMRC’s system may have just carried on taking the direct debit and called it a voluntary contribution. If you are also self employed, this could mean that you have paid Class 2 National Insurance by direct debit and also have paid if through self assessment.
So check your direct debits and if you are still paying a monthly Class 2 contribution, you can write to the National Insurance department at HMRC to request a refund if this is not correct.
Please get in touch if you would like more information or assistance in this matter.