HMRC has published a formal response after the professional body representatives on its Issues Overview Group (IOG) escalated the need for a resolution to the collection of Class 2 NICs.

HMRC started to collect Class 2 NICs through self assessment from the 2015/16 tax year. However, ICAEW members’ experiences confirm that implementing this change has been fraught with problems and correcting cases where NICs have not been collected resulting in unnecessary administration and costs for both taxpayers and HMRC.

The professional body representatives who sit on the IOG, a mix of volunteers who are in practice and professional body staff, have pressed HMRC repeatedly to develop a more robust process that would prevent these problems from occurring.

This week HMRC published a formal response to the escalation, reproduced below, which concludes that a solution is "prohibited by cost and plans in place for the future of the IT systems concerned".

Caroline Miskin, one of the ICAEW representatives on the IOG says: “It is very disappointing that HMRC is not able to develop a suitable process for collecting Class 2 NICs.”

“We are very concerned about the taxpayers who will not become aware of the importance of paying Class 2 NICs until they need to claim state benefits, including the state pension The problem may not emerge for many years and by then it may be too late to rectify matters.”

She states: “ICAEW hopes  that this problem will be designed out of the system before many more years have elapsed.”

Caroline  suggests that members in practice should be able to avoid this problem from arising by registering a client who is newly self-employed in the way that HMRC has recommended, and not by submitting a voluntary tax return.

“Everyone should be encouraged to monitor their national insurance record through their personal tax account to ensure that their contributions are being accurately recorded by HMRC,” she advises.

• ICAEW advice on how resolve Class 2 NICs not collected by HMRC
• ICAEW advice on checking NICs records

HMRC response: Self-Employed – Making sure Class 2 National Insurance is included in Self Assessment calculations

“HMRC has considered concerns raised by Professional Bodies representing self-employed agents in relation to instances where Class 2 National Insurance Contributions (NICs) are not included in a customer’s Self Assessment (SA) calculation, and as result go unpaid.

“Paying Class 2 National Insurance is not only a legal requirement, it also protects a person’s future entitlement to State Pension.

“HMRC has confirmed 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 has found that, in the overwhelming majority of cases, 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.

“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 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.

• ICWF1 online structured email form
• Self-Assessment (SA) and Class 2 NICs - Agent Update 73
• National Insurance contributions and the link to State Pension and benefits - Agent Update 74
• HMRC Community Forums Knowledge Base”