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Self Employed ? - Class 2 National Insurance Warning - Adverse Impact on State Pension

DRD

DRD

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All

This bizarre situation has just been brought to my attention and it may be relevant for some on here if:
  1. You are self employed; and
  2. You do not operate through a company
You were meant to Pay Class 2 National Insurance at a fixed £3.45 a week and profit based Class 4 National Insurance which would probably be many thousands.

Somewhat remarkably, when you complete your online tax return under self assessment the system computes your Class 4 demand and it is collected along with your income tax. The rather trivial Class 2 payment of c £180 a year is not asked for and thus potentially not collected.

So despite paying thousands in National Insurance - it might not have contributed to your state pension years. Typically you need 35 qualifying years to get a full state pension. If you have not paid this Class 2 NI, you will have "missing years" of contributions. You can go back 6 years to pay these c £150 a year amounts to help build your state pension, but any earlier missed years cannot be saved in this way. For earlier years you need to pay Class 3 NI which is more like £825 a year !!
 
Everybody should check their state pension entitlement to ensure they have enough ni years. Not just self employed. And you should do this now as you can buy missing years prior to 2016 for now but only until April. Then you will only be able to go back 6 years which may not give you enough years to achieve a full state pension.
And the £825 to buy a year of NI credit is also going to increase massively in April as it has been held at that for buying back the pre 2016 NI years to allow people enough time to buy their pre 2016 years during a huge backlog period at hmrc. It will likely be over £950 IN April maybe even over £1000.

What do you get for your £825? An extra £330 a year on your state pension. So you only have to draw 2 and a half years to get your money back. And it's all triple locked (at least for now). So it's great value for money. Unless current or future government changes the rules or means tests state pension.

Martin Lewis has written loads on this so read up first but everybody needs to be checking their state pension now and working out whether they need to top up their NI.

We just bought 11 years for my wife at a cost of £9k but that's going to get her £3.7K per year extra pension whe she starts taking it in 3 years. A bargain.
 
Fantazia2 said:
Handy site here to check your NI record.
Click to expand...
Has anybody else clicked this link and been taken to a page and filled most of the details in?

I did and was filling it in when I began to think it was a bit fishy so stopped filling in but only after entering some personal details.
I just came back on here and clicked the link again but this time I was directed to the official government site.

I think I may have just been the victim of some kind of identity fraud.
I can no longer access the page and like a fool I have entered my name, address and also my wife's details including our NI numbers.
I feel really stupid as I am normally so aware of this type of thing.

Has anybody else been directed to a site that only half fills the screen and asks for their details?
 
DRD said:
All

This bizarre situation has just been brought to my attention and it may be relevant for some on here if:
  1. You are self employed; and
  2. You do not operate through a company
You were meant to Pay Class 2 National Insurance at a fixed £3.45 a week and profit based Class 4 National Insurance which would probably be many thousands.

Somewhat remarkably, when you complete your online tax return under self assessment the system computes your Class 4 demand and it is collected along with your income tax. The rather trivial Class 2 payment of c £180 a year is not asked for and thus potentially not collected.

So despite paying thousands in National Insurance - it might not have contributed to your state pension years. Typically you need 35 qualifying years to get a full state pension. If you have not paid this Class 2 NI, you will have "missing years" of contributions. You can go back 6 years to pay these c £150 a year amounts to help build your state pension, but any earlier missed years cannot be saved in this way. For earlier years you need to pay Class 3 NI which is more like £825 a year !!
Click to expand...
This a bit broad-brush, there is some nuance to this and the position changed in April 2024.

For tax years from 2024-25 onwards Class 2 NICs are no longer compulsory. To my mind the only UK-resident people who should consider paying them are those whose self-employment profits are below the Small Profits Threshold (£6,725 p.a.) for the purposes of getting NI credit for your state pension. If your profits are above this amount then you will be getting credit anyway. I won’t go into the position for those overseas, it can get quite complicated depending on their situation.

Before 2024-25 your liability to Class 2s was based on your profit level. You always had the option of paying voluntarily if your profits were below the Small Profits Threshold. If your profits were between the SPT and the Lower Profits Limit (LPL) of around £11-12k (this figure changed year to year), then for 2022-23 and 2023-24 you were treated as having paid Class 2 without needing to actually do so. If your profits were above the LPL then Class 2 was due.

The above only works correctly if you were properly registered as self-employed with HMRC.

I would recommend that you check your NI records to ensure you have your qualifying years, if you have any missing years which you weren’t expecting then reach out to HMRC and query this before making any additional payments - you may not need to.
 
Triple H said:
Has anybody else clicked this link and been taken to a page and filled most of the details in?

I did and was filling it in when I began to think it was a bit fishy so stopped filling in but only after entering some personal details.
I just came back on here and clicked the link again but this time I was directed to the official government site.

I think I may have just been the victim of some kind of identity fraud.
I can no longer access the page and like a fool I have entered my name, address and also my wife's details including our NI numbers.
I feel really stupid as I am normally so aware of this type of thing.

Has anybody else been directed to a site that only half fills the screen and asks for their details?
Click to expand...
It was a direct link to a gov.uk site so should be ok.

You would need a govermnent gateway account to use it, not sure where you have ended up.
 
The link takes me to the official government site now but it did not when I first clicked on it.

I am in discussion with @Calimori at the moment regarding this 👍
 
So I have paid my contributions for 30 out of 33 years so just 3 three years missed. It tells me "You do not have any payable gaps in your National Insurance record that will increase your State Pension" Based on that I suppose it would be pointless paying those contributions for the missed years right?
 
Lickashot said:
So I have paid my contributions for 30 out of 33 years so just 3 three years missed. It tells me "You do not have any payable gaps in your National Insurance record that will increase your State Pension" Based on that I suppose it would be pointless paying those contributions for the missed years right?
Click to expand...
You need 35 years for a full new state pension. I assume this "You do not have any payable gaps in your National Insurance record that will increase your State Pension" is because you are more than 5 years from state pension age so they assume you will pay those 5 more years anyway
 
Lickashot said:
So if you paid, for let's say 40 years, am I right in thinking your state pension would be no greater than if you paid for 35 years?
Click to expand...
That's correct, unless of course they change the rules again. You'll have to continue to pay NI though in most cases.

Maybe have to pay more than 35 if you were contracted out? Not sure on the rules for this

www.gov.uk

Contracted out of the Additional State Pension

Check if you were contracted out of the Additional State Pension and what it means for your State Pension
www.gov.uk www.gov.uk
 
Last edited:
Basing my info on what I know as I pay voluntary contributions, I dont have in depth knowledge of it. Probably better to get a pension forecast or advice/ information from the government if you need it though as everyone’s situation can be slightly different.
 
Possibly the wrong place but there are some clever folk here so thought I'd ask.

I'm a sole trader and need to go VAT registered but when I tried it said I needed a business HMRC account rather than my personal one that I have been doing my self assessment with traditionally. Is that correct if I just want to remain a sole trader?
 
@Gonzo

Sorry, but I am not a VAT specialist. But, if you need to get VAT registered that suggests your turnover is 90k plus, wouldn't you be better putting your business into a company ?

With a company you get a firewall between you and the business' debts. If someone successfully sues your unincorporated business you could lose all your personal assets as well. With a company can you can time and flex the way you get paid - salary v dividend v (potentially) loan repayments according to what the tax man throws at you. With a company you can potentially save significantly on National Insurance.

Yes, there is a bit more admin but there is free UK government software to submit your company accounts to companies house and this also deals with your corporation tax return. If you open a company bank account with Starling it can be done in hours from your home without the need to set foot in a branch.

My wife has operated as a sole trader and under her company depending on what her clients have demanded. Over 10 years plus it has been far better in the round to operate under a company.
 
DRD said:
@Gonzo

Sorry, but I am not a VAT specialist. But, if you need to get VAT registered that suggests your turnover is 90k plus, wouldn't you be better putting your business into a company ?

With a company you get a firewall between you and the business' debts. If someone successfully sues your unincorporated business you could lose all your personal assets as well. With a company can you can time and flex the way you get paid - salary v dividend v (potentially) loan repayments according to what the tax man throws at you. With a company you can potentially save significantly on National Insurance.

Yes, there is a bit more admin but there is free UK government software to submit your company accounts to companies house and this also deals with your corporation tax return. If you open a company bank account with Starling it can be done in hours from your home without the need to set foot in a branch.

My wife has operated as a sole trader and under her company depending on what her clients have demanded. Over 10 years plus it has been far better in the round to operate under a company.
Click to expand...


Thanks mate, I appreciate you taking the time to write. I have looked into all of that and am very aware of the pros & cons of each. Cheers mate
 
FYI, For anyone that needs/wants to pay for missing years you have until April 6th to make up any missing years back to 2006, after that you can only backdate to 2019.

Although you might not need to backdate all of them depending on how many are complete and how long till your retirement age to still contribute, or if you plan to retire early.

The Gov.uk link I posted earlier can tell you how many full years you have and how many you need

Was mentioned on Money Saving Expert mailer today.
 
Yes I have done it (for my wife).
Your wife will need to make the calls.
You should first check record online to see if she is short.
She will then need to call the Future Pension Centre and they will work out for her which years she should buy to top up her state pension https://www.gov.uk/future-pension-centre
They will then tell her how much she needs to pay and where to pay it.
Apparently they are really busy due to the 6 April deadline so they have said that if you call and request a call back they will process post 6th April if necessary https://www.bbc.co.uk/news/articles/c99n1550510o
 
This could be the most valuable thread ever on Pinballinfo.

Looking at Moneyweek (so the data is three months old)

"A 65-year-old with a £100,000 pension pot can get ... an RPI-linked annuity is currently delivering up to £4,806 per year ... according to Hargreaves Lansdown."

moneyweek.com

Is an inflation-linked annuity or a level annuity better value?

What makes more sense as a retirement plan: an inflation-linked annuity or a level annuity?
moneyweek.com moneyweek.com

So very crudely, the open market would charge you 20x for a RPI-linked annuity. ie you would pay £20 today for the rpi protected annuity of £1.
Whereas our government will charge you less than 3x for an annuity (on retirement) that benefits from the triple lock so increases annually by the highest of 2.5%, inflation and wage growth.

@Arv is right - the government might do all manner of things to state funded pensions in the future as they are bankrupting the country. Means testing ?

But topping up your state pension as described by @Asiapinball could be extremely valuable, particularly for folk on here/ their partners.

For Isle of Man fans - I understand that if you have worked in both the UK and the IOM and you play your cards right by making the relevant (modest) voluntary contributions you can get both UK and IOM state pensions ie double-up.
 
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