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HMRC internal manual

National Insurance Manual

Refunds: retrospective change of employment status from employed earner (Class 1) to self-employed (Class 2)

Section 19A of Social Security Contributions and Benefits Act 1992

Section 19A of SSCBA 1992 provides a 2 year limitation on the refund of Class 1 contributions paid in error in that the employment from which the earnings are derived is not employed earner’s employment, but self-employment.

In these cases section 19A of the SSCBA 1992 will come into effect subject to the 2 year time limit.

Where a workers status changes from employee to self-employed, the period for which a refund of wrongly paid Class 1, Class 1A or Class 1B is available is 2 years.

The overall effect is that all claims to refund falling after April 2004 will be subject to this 2 year limitation bringing finality to the contribution record, protecting benefit and reducing the administration costs to the taxpayer.

The two year limit relates to NICs paid in the same tax year in which the refund claim is made this is usually the current tax year (which can be refunded by the employer/engager), and the previous tax year.

Class 1 NICs paid outside of these limits are treated as correctly paid and will remain on the individual’s NI account. These may increase an individual’s entitlement to State Second Pension (formerly State Earnings Related Pension (SERPS)) or Additional Pension.

In these cases you also need to take account of

  • section 61A of the SSCBA 1992, see NIM37017
  • Regulation 59 of the Social Security (Contributions) Regulations 2001, see NIM37018