Class 2 NICs calculation problem not resolved

Sara White, Editor, Business & Accountancy Daily

An issue with employee Class 2 NICs calculations is still causing headaches for self employed taxpayers and HMRC is still trying to sort it out.

The Association of Taxation Technicians (ATT) has received a number of reports from members about problems with Class 2 National Insurance contribution calculations for 2024-25.

HMRC is working to resolve the issue, which has resulted in some self assessment taxpayers seeing Class 2 NICs charges added to their accounts which should not be there.

An HMRC spokesperson said: ‘We apologise to those affected and we’re working urgently to resolve this issue.’

The problem has arisen due to changes announced at Autumn Budget 2024, which meant that from 2024/25 onwards, self employed people receive a credit for Class 2 NICs as long as their profits are above £6,725. As a result, they do not need to pay Class 2.

Anyone with profits below this level can opt to pay Class 2 voluntarily. 

ATT members have reported that following the submission of a tax return for individuals who do not need to pay Class 2 (and who are not paying voluntarily) they have received one of three letters from HMRC.

In each case, the HMRC letter says that Class 2 NIC has been amended ‘in accordance with the information we hold’ but for varying amounts.

The letters

Version 1 - the Class 2 figure has been ‘amended’ to be zero – which is in line with the original submission. In this case, the letters are unnecessary.

Version 2: a Class 2 charge of £179.40 has been added to the computation, which should not have been included and now needs to be removed. 

Version 3: a Class 2 charge of £179.40 has been added to the computation, which should not have been included, and the tax liability has been increased by double this amount.

ATT has reported all examples received so far to HMRC and the matter is currently being investigated ‘as a matter of urgency’.

HMRC has been contacted for comment.

While Class 2 NIC are voluntary, they are important to consider in the context of entitlement to the state pension.

‘If you have not paid enough Class 1 NIC to count as a full tax year of contributions towards benefits such as the state pension then you may want to consider paying class 2 NIC voluntarily,’ according to the Low Incomes Tax Reform Group (LITRG).

‘The state pension depends on you having paid or been credited with sufficient NIC over your working life. You need a minimum of 10 qualifying years on your National Insurance record and usually a maximum of 35 years (but this can vary and will depend on your circumstances).’