Self-employed and registered for self-assessment but are you correctly registered for Class 2 National Insurance?

Self-employed individuals who earn more than £1,000 per year are required to register for Self-Assessment for tax purposes and also register to pay Class 2 National Insurance Contributions (NIC). A self-employed earner is required to pay Class 2 NIC where they have relevant profits at or above the small profits threshold.

During the COVID-19 pandemic the Department of Work and Pensions (DWP) suspended face to face interviews for those individuals who needed to apply for a national insurance (NI) number. This number is required by those who wish to register as self-employed with HMRC, and, therefore, problems have arisen where individuals have been unable to complete the registration process, since they were unable to obtain an NI number.

As an interim measure to address this issue, HMRC allowed those individuals who were unable to obtain an NI number to register as self-employed by completing form SA1 rather than the standard CWF1 form.

The completion of form SA1 allowed the individual to be registered as self-employed for self-assessment tax purposes but they were not registered for national insurance purposes. Once the individual was able to apply for and had been allocated an NI number, they were expected to contact HMRC and register for Class 2 NIC.  HMRC would then be able to update their records and arrange the collection of Class 2 NIC through the self-assessment process.

As recently published in HMRC’s latest Agent Update: Issue 88, individuals are now able to apply for an NI number so they can return to using the CWF1 form to register as self-employed.  However, those individuals who have registered as self-employed using only form SA1 must remember to contact the National Insurance helpline if they have not already done so to register for Class 2 NIC.

In addition to leaving an individual open to arrears, which HMRC will seek to pursue, failure to pay Class 2 NIC can affect an individual’s access to state benefits such as the basic state pension, bereavement benefits, maternity allowance and contributory employment and support allowance.

It is useful to remember that there is a specific format to an NI number – it is made up of two letters, followed by six numbers and a final letter, which will always be one of A, B, C or D. For example: AA 12 34 56 A (this should not be used as an actual number, it is for illustrative purposes only).

HMRC may, on occasion, use a Temporary Reference Number (TRN) to enable an individual to pay tax and NIC. The TRN has a specific format which is made up of two numbers, then a letter followed by five numbers. For example: 22 B2 22 22 (this should not be used as an actual TRN, it is for illustrative purposes only).

The TRN is not a valid NI number, so individuals who hold only a TRN will still need to formally apply for an NI number with the DWP.

Those individuals who have suffered a delay in applying for and being issued with an NI number should now ensure that, where appropriate, they are also correctly registered for Class 2 NIC with HMRC.

If you would like to raise anything we’ve discussed in this article, please contact us at info@guildhubservice.co.uk and talk to our expert team. We’re here to help.