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HMRC internal manual

Compliance Operational Guidance

Supporting Guidance: employer compliance: guidance by subject: settlement: direction under regulation 72F: impact on National Insurance Contributions

There are no corresponding amendments required to the National Insurance Contributions Regulations as HMRC already has the legal authority to treat Class 2 and 4 contributions paid in error as paid on account of primary Class 1 (employee) contributions properly payable. Below is the process for dealing with Class 4 and Class 2 NICS.

Class 2 NICs

In accordance with Regulation 51 of the Social Security (Contributions) Regulations 2001 where Class 2 contributions are paid which are of

  • the wrong class, or
  • at the wrong rate, or
  • of the wrong amount

you may treat them as paid on account of contributions properly payable.

Where Class 2 contributions were paid in error by an individual re-categorised as an employee they may be set against any primary Class 1 NICs payable by a secondary contributor for that employee.

The payment of Class 2 Contributions does count towards the state benefit entitlements of the individual.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

Any computations issued should therefore clearly indicate

  • the gross amount of primary Class 1 NIC due less an amount of Class 2 set-off and
  • a separate amount of Class 4 set-off (see below).

It is essential that NICO are not asked to change the status of the Contributor on NIRS from self-employed to employed. This is because there may well be a continuing liability to Class 2 because of the situation mentioned above.

The onus will be placed on the individual to contact NICO to advise that they have ceased in self-employment and have become an employed worker. See COG915335 - Settlement Process for more details.

If the worker does not submit the ‘Change in Employment Status - Declaration of Non- Liability for Class 2 NIC’ letter to NICO, you should assume that they have had other concurrent self-employment and/or have now moved on to work in other self-employment. As a result

  • Class 2 paid will remain on account,
  • Class 2 liability will continue and
  • Class 1 will also be posted from this engagement, see Allocation of Class 1 NICs (COG915335 - Settlement).

If the worker does send the letter to NICO declaring that they were not self-employed in any other capacity and are no longer self-employed, the

  • Class 2 liability will be removed [so that they will no longer be billed] and
  • any potential refund of the Class 2 already set-off, inhibited by NICO.

See the attached Class 2 flowchart for the process you should follow.

Class 4 NICs

Where Class 4 Contributions have been paid in error then in accordance with

  • Regulation 101 of the Social Security (Contributions) Regulations 2001

you can treat those payments as made on account of other contributions properly payable by the same person. If Class 4 contributions are paid in error by an individual re-categorised as an employee they may be set against any primary Class 1 contributions payable by an employer (secondary contributor) for that employee.

The payment of Class 4 Contributions does not impact on the state benefit entitlements of the individual.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

Any computations issued should therefore

  • clearly indicate the gross amount of primary Class 1 NIC due less an amount of Class 4 set-off and
  • a separate amount of Class 2 set-off (see above).

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

See the attached Class 4 flowchart for the process you should follow.

See the attached (Class 4 Deferment Boxes (Word 32KB)) on the SA return.