Class 2 National Insurance contributions: payments: payments via Self Assessment tax return: effect on State Pension
For most self-employed earners, from the 2015 to 2016 tax year Class 2 NICs will be assessed, calculated and payable annually through the Self Assessment system.
Such self-employed earners will be required to submit their Self Assessment tax return and payment by 31 January following the end of the relevant tax year. A Class 2 NICs liability will only arise where the self-employed earner has relevant profits of or exceeding the small profits threshold (SPT).
Payment of Class 2 NICs after the end of the relevant tax year may impact on entitlement to the new State Pension (nSP). This is illustrated in the example below.
Man reaches State Pension age (SPa) on 10 June 2016.
Last year used for nSP is 2015 to 2016 (the tax year ended before the man’s SPa).
Man submits his Self Assessment tax return for the 2015 to 2016 tax year on 31 January 2017.
There is a Class 2 liability and the NICs are recorded on the National Insurance and PAYE Service (NPS) system shortly after receipt, but after the man reaches SPa.
If the 2015 to 2016 tax year becomes qualifying for nSP when the Class 2 NICs due for the period of liability are paid, paying those NICs in January 2017 may impact the man’s entitlement to nSP from SPa. Once the NICs collected in January 2017 (that is, by the due date) are recorded on his NPS account, the man’s new State Pension (nSP) should be recalculated and any arrears due will be paid.
Alternatively, the self-employed contributor could submit his Self Assessment tax return immediately after the 2015 to 2016 tax year if the relevant profits for that year are known and liability can be established. If the Class 2 NICs were collected and recorded on his NPS account by the date the man reaches SPa, then they could be taken into account for his nSP entitlement from SPa.
If the Class 2 NICs are paid after 31 January 2017, but within 6 years, the Class 2 NICs will be classed as ‘L’ (late) and, if appropriate, his nSP will be revised from the date paid. He will not be paid any arrears.