Class 2 NI contributions, again...

[CryptoPlankton]

Having definitely retired from any serious gainful employment, I find myself two or three contribution years short of qualifying for the full state pension and looking at having to make some voluntary contributions. Like at least one other poster here, I am not keen on the idea of "gaming the system". However, with a difference in excess of £600 p.a. between Class 2 and Class 3, it's hard to ignore investigating ways in which the former could be justified. Could I, say, just sell some of my old vintage guitar magazines on eBay each year (hopefully at a small profit to the original price), maybe buying and selling a little if I see bargains once doing it? Could I simply do a little tuition for friends' kids for a nominal fee a few times a year? Something similarly spurious? The online government guidance seems a little vague.

I already complete a Self Assessment each year (and was self-employed for a while several years ago) and already have a 10-digit UTC so would I need to specifically register as self-employed again? I must admit that I'm not totally comfortable with the idea, but if it saves me a couple of thousand pounds and isn't frowned upon by anyone then I shall have to seriously consider it.

One thing that intrigued me when looking at the government site was the following:

Special rules for specific jobs
Some self-employed people do not pay National Insurance through Self Assessment, but may want to pay voluntary contributions. These are:

examiners, moderators, invigilators and people who set exam questions
people who run businesses involving land or property
ministers of religion who do not receive a salary or stipend
people who make investments for themselves or others - but not as a business and without getting a fee or commission

Can anyone elaborate on the last line in bold? On the face of it, that would qualify me as self-employed and entitled to pay Class 2 voluntarily (my investments are nearly all in ISAs and a SIPP) .

As you can probably tell, I feel a little conflicted about all this so any general thoughts regarding the morals and/or practical aspects of voluntary Class 2 contributions would be welcome!

Cheers, CP

[MyNameIsUrl]

As you can probably tell, I feel a little conflicted about all this so any general thoughts regarding the morals and/or practical aspects of voluntary Class 2 contributions would be welcome!

I thought your post might provoke a lot of useful discussion, which hasn’t happened as yet, but maybe my general thoughts may be a little help.

On the morals and the practical aspects: my wife found herself two years short of a full state pension (despite her having made 41 years of contributions), so we looked at Class 2 and Class 3 to make them up. We were well into the first of the years available to her and we felt it was too late to set up as self-employed for the year. It felt like a bit too much of a contrivance to try to construct the argument that she had been self employed retrospectively. So she paid the £750 for the year.

For the following year (the only other year available as state pension age approached) she registered as self-employed online and started to run a small, miniscule, business based on her craft hobby. She made a very small number of sales which we made sure had evidence (a friend gave a cheque rather than cash so the income showed on the bank statement, Ebay provided further records). We also had records of expenses for materials which were allocated in proportions to business and hobby. We checked that there was a profit rather than a loss to avoid the situation of both claiming for a years pension and reducing tax paid on other income – which seemed to be stretching things too much, taking the mickey even. None of it was spurious or made up, all the transactions are real. So for that second year she paid £150 for a years contribution.

We too felt conflicted about gaming the system, and we read the rules and were confident that we were legally ok. I’ve seen stories of people sailing a lot closer to the wind than us, and in some cases doing things we didn’t think would sit properly with us morally. We’ve always been meticulous with our tax records, almost obsessive about doing the right thing. The only other thing I would say about morality was that when my wife first started making pension contributions in the 1970s, the deal was that she would get her state pension at age 60; that deal was broken, and whatever the many excuses for breaking that deal, that was morally wrong.

[bluedonkey]

The specific rules that you have quoted in italics are a red herring and will not be relevant.

[CryptoPlankton]

I thought your post might provoke a lot of useful discussion, which hasn’t happened as yet, but maybe my general thoughts may be a little help...

They are, and many thanks for taking the time to share them (I've always liked that username, btw!)

The specific rules that you have quoted in italics are a red herring and will not be relevant.

Why on earth would they do that? Are the rules relevant to something other than the context in which they are presented? Bizarre, but not to worry.

Oh well, one for me to ponder on for now...

[Mulberry]

I ran a self-employed business for around 19 years until about 18 months ago and paid Class 2 NICs. I was similarly a couple of years short of the required number of years to qualify for a full state pension.

Perusing the regulations I too found that interesting sentence about people making investments for themselves and wrote to HMRC to ask to continue to pay Class 2 contributions on that basis. The letter I received in reply made no reference to that request at all but stated that I could continue to pay Class 2 contributions on the basis of property letting - I own a couple of let properties. I am fairly certain that I don't qualify on the basis of property letting as I employ a letting agent. However, although I did wonder about pursuing the matter further and asking why they wouldn't let me pay contributions on the basis of managing investments, I felt it was probably better to keep my head down and be grateful for the direct debit they set up for payment of Class 2 contributions.

The evident reluctance to allow managing investments as a basis was intriguing though.

Mulberry

[CryptoPlankton]

Perusing the regulations I too found that interesting sentence about people making investments for themselves and wrote to HMRC to ask to continue to pay Class 2 contributions on that basis. The letter I received in reply made no reference to that request at all but stated that I could continue to pay Class 2 contributions on the basis of property letting - I own a couple of let properties. I am fairly certain that I don't qualify on the basis of property letting as I employ a letting agent. However, although I did wonder about pursuing the matter further and asking why they wouldn't let me pay contributions on the basis of managing investments, I felt it was probably better to keep my head down and be grateful for the direct debit they set up for payment of Class 2 contributions.

The evident reluctance to allow managing investments as a basis was intriguing though.

Mulberry

That's interesting, thank you. I do let a property, but believe it must be more than one to potentially qualify as a business. I suppose this may partially explain the response you received from HMRC, though I think you were probably wise to let it go! I may try asking them about this investment business myself to see what kind of response I get. I'll report back in the unlikely event I get a useful answer...

[CatcheeMonkee]

Paying Class 2 contributions is straightforward, particularly if you're already set up for Self Assesment. Otherwise this is the first thing to do. A friend sells a few paintings each year, profit under £1000 so no tax and no need to declare apart from wanting to voluntarily pay Class 2. There is no issue, National Insurance were phoned when she started. The self assessment form isn't ideal to navigate for this but doable. You need to pay the contributions by 31st Jan each year. I think any small business would be fine - a spot of gardening for a neighbour?? Don't know, but I guess that'd be fine??

[DrBunsenHoneydew]

The "rules" seem to be extremely relaxed don't they? If you have been a self-employed sole trader that has now ceased for practical purposes and has nil turnover but not formally ceased by filling in a date in the box provided explicitly for that on the Tax Return, you can continue to pay Class 2 NI.

They did try to get rid of Class 2 a few years ago and might try to do so again. But for now, hay is being made.

[swill453]

Yes, I became an "Internet trader" for a couple of years. Actually did some real sales, kept a spreadsheet and everything. I didn't even need to fill the numbers into my Self Assessment because turnover was so low, but was able to pay Class 2s and get the years credited.

Scott.

[Stompa]

The "rules" seem to be extremely relaxed don't they? If you have been a self-employed sole trader that has now ceased for practical purposes and has nil turnover but not formally ceased by filling in a date in the box provided explicitly for that on the Tax Return, you can continue to pay Class 2 NI.

Yes, I have a couple of years acquired that way. Why did they make Class 2 cheaper than Class 3? In 1999-2000 weekly Class 2 was £6.55 and Class 3 £6.45. In 2000-01 that changed to £2.00 for Class 2 and £6.55 for Class 3.

[DrBunsenHoneydew]

The "rules" seem to be extremely relaxed don't they? If you have been a self-employed sole trader that has now ceased for practical purposes and has nil turnover but not formally ceased by filling in a date in the box provided explicitly for that on the Tax Return, you can continue to pay Class 2 NI.

Yes, I have a couple of years acquired that way. Why did they make Class 2 cheaper than Class 3? In 1999-2000 weekly Class 2 was £6.55 and Class 3 £6.45. In 2000-01 that changed to £2.00 for Class 2 and £6.55 for Class 3.

When they reduced Class 2 they simultaneously increased the Class 4 by reducing the lower threshold for profits from £7530 to £4385 and increasing the percentage charged from 6% to 7%.

[Stompa]

The "rules" seem to be extremely relaxed don't they? If you have been a self-employed sole trader that has now ceased for practical purposes and has nil turnover but not formally ceased by filling in a date in the box provided explicitly for that on the Tax Return, you can continue to pay Class 2 NI.

Yes, I have a couple of years acquired that way. Why did they make Class 2 cheaper than Class 3? In 1999-2000 weekly Class 2 was £6.55 and Class 3 £6.45. In 2000-01 that changed to £2.00 for Class 2 and £6.55 for Class 3.

When they reduced Class 2 they simultaneously increased the Class 4 by reducing the lower threshold for profits from £7530 to £4385 and increasing the percentage charged from 6% to 7%.

Ah thanks, that would explain it.

[1nvest]

When I did my SA for 2019/2020 there was the option to voluntary pay Class 2, but whenever I ticked the YES option it red flagged that and insisted I enter NO. Perhaps due to having made a loss?

[CatcheeMonkee]

Yes, you do have to select odd options to get the result you want ...

[HerbertViola]

It occurs to me that if the Government thought it a cheek for a low-earning self-employed person to get an NI credit at such a bargain price, then they would at least reinstate the NI 'entry fee' for employees that Gordon Brown so misguidedly abolised, and even replaced with an earnings band (significantly above the SE turnover/profits we are talking about here) where you could get the credit for no fee at all.

Brown's argument was that the so-called entry fee (an minimum amount of NI that an employee had to pay to get the credit) was 'unfair'. You would think that if it was that 'unfair' then there would be far fewer people opting to pay the Class 2 version of it voluntarily, wouldn't you?

What's clearly unfair now, at least by comparison, is the Class 3 rate (particularly galling if you are an employee earning just below the threshold for a free credit).