Voluntary National Insurance (Class 2) - for Investors

[bwel]

But in NIC it is clear (see the links I posted above) that there is another boundary that exist on the non-trading side of the line between what might be termed dabbling in investments and gainful self employment.

I take it you are referring to the middle tier from the HMRC manual that I posted and linked to in viewtopic.php?p=458513#p458513 before you echoed the same link a couple of posts later.

The question is, what is "enough" such that "does not do enough to pass the trade, profession or vocation test for an income tax charge to arise under Chapter 2 of Part 2 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA) on the proceeds of their investment related activitie" falls out of that middle tier and into the third tier of "sufficient activity" to pass the test?

The Income Tax (Trading and Other Income) Act 2005 can be found at https://www.legislation.gov.uk/ukpga/2005/5/contents, for anyone that wants to try and figure it out.

It seems that the classification and treatment for Income Tax are somewhat separate to those categories for National Insurance Contributions. I've not fully interpreted document from - The Income Tax (Trading and Other Income) Act 2005 fully, but I'm not convinced that it has any baring on the treatment for National Insurance. Incidentally, there appears to be no mention of National Insurance within the doc.

[mc2fool]

It seems that the classification and treatment for Income Tax are somewhat separate to those categories for National Insurance Contributions. I've not fully interpreted document from - The Income Tax (Trading and Other Income) Act 2005 fully, but I'm not convinced that it has any baring on the treatment for National Insurance. Incidentally, there appears to be no mention of National Insurance within the doc.

The NI legislation is in the Social Security Contributions and Benefits Act 1992 (SSCBA) which is also referenced in the HMRC manual page.

https://www.legislation.gov.uk/ukpga/1992/4/contents/enacted

See the HMRC manual page for the sections/subsections of the SSCBA to look up. Here's the link again as we're on a new page.

https://www.gov.uk/hmrc-internal-manuals/national-insurance-manual/nim74250

[AF62]

I read this thread (and the ones here viewtopic.php?p=382505#p382505 and here viewtopic.php?p=448830#p448830) with interest since my wife and I took early retirement just over 18 months ago.

Prepared with the information from https://www.gov.uk/voluntary-national-i ... tributions and https://www.gov.uk/hmrc-internal-manual ... l/nim74250 we both contacted HMRC (separately) and told them that we wanted to register to pay voluntary class 2 for 21-22 but as investors we did not want to register for self-assessment.

We were both prepared with the information from NIM74250 as we both considered we met the test of 'a person who does more than dabble', although how HMRC would attempt to define 'dabble' I am not sure.

My call with the NI team was straightforward - "yes, no problem, you will get a payslip in September or October".

No questions about my investment activity; the amount, frequency, etc. nothing at all.

My wife's call was more difficult with the person on the NI team arguing that it couldn't be done without self-assessment, but my wife was firm and referred them to the general web page (https://www.gov.uk/voluntary-national-i ... tributions) where it says to the contrary and they agreed to consult with a specialist. They came back a few minutes later and apologised and agreed she was correct and that she would get a payslip in September or October.

Again, no questions about her investment activity.

And then a week later we both got letters confirming that we had registered for self-assessment and for 21-22 we were required to submit!!!!

We both then contacted the self-assessment team at HMRC, again separately.

This time my wife's call was straightforward - "yes, completely agree you don't need to complete a self-assessment return".

However for me it was my turn for the call to be more difficult. Although the person didn't argue they told me that they needed to check with a specialist team and would call me back.

When they called me back they asked about tax due on dividends, but when I told them that it was all sheltered in an ISA they then confirmed I didn't need to complete a self-assessment return.

The following week we both received letters confirming that the requirement to self-assess for 21-22 had been withdrawn.

This morning NI pay-slips turned up for both of us to pay the class 2 for 21-22.

So in summary, it seems that this option to pay class 2 for investors is available (and without self-assessment), but you might need to spend some time on the phone with different teams at HMRC getting there.

[bwel]

Thanks for the update.

By coincidence, my Wife’s, Paying In Slip for Class 2 has just arrived in this mornings post for the period - 11_04_2021 to 09_04_2022 - Amount £158.60.

This is great as it adds one more year towards her Pension Contributions for a very low cost. The ROI on these Voluntary Class 2's is very high. I have done the Calc in the past, but cant remember exactly how, but essentially for £157.60, you get an incremental year of the required (Aprox 35 Years). I seem to recall its value is just over £4.82 per week in incremental pension, which equals a minimum of £4.82x52 = £250 per Year of pension drawn (at todays rates).

Even if one only lived for 5 years from retirement then that’s an ~800% ROI with zero risk permium, and that’s not accounting for the future pension increases over the years between now and pensionable age.

[mc2fool]

Thanks for the update.

By coincidence, my Wife’s, Paying In Slip for Class 2 has just arrived in this mornings post for the period - 11_04_2021 to 09_04_2022 - Amount £158.60.

This is great as it adds one more year towards her Pension Contributions for a very low cost. The ROI on these Voluntary Class 2's is very high. I have done the Calc in the past, but cant remember exactly how, but essentially for £157.60, you get an incremental year of the required (Aprox 35 Years). I seem to recall its value is just over £4.82 per week in incremental pension, which equals a minimum of £4.82x52 = £250 per Year of pension drawn (at todays rates).

Even if one only lived for 5 years from retirement then that’s an ~800% ROI with zero risk permium, and that’s not accounting for the future pension increases over the years between now and pensionable age.

The current, 2022/23, figures are that a Class 2 NIC costs £3.15pw = £163.80 for the year, and will get you (assuming no maxing out) an extra £5.29pw = £275.08 a year extra pension, at today's rates. So, a "flat" payback in just over 7 months on getting your pension.

I am a little curious as to why both of you decided to call HMRC to register and didn't just fill in the online form ... although in AF62's case that might have required self assessment maybe....?

[AF62]

The ROI on these Voluntary Class 2's is very high.

Had there been any issue paying the class 2 then I was prepared to pay the class 3 at £15.85 a week, so around £825 for the year as that has a repayment of just over three years, but paying the class 2 is an absolute 'no-brainer'.

[AF62]

I am a little curious as to why both of you decided to call HMRC to register and didn't just fill in the online form ... although in AF62's case that might have required self assessment maybe....?

I called because that's what the website says - https://www.gov.uk/pay-class-2-national-insurance

HM Revenue and Customs (HMRC) will send you a payment request by the end of October - call the newly self-employed helpline if you do not get one.

And so I called the newly self-employed helpline, but then that led down the rabbit hole of being registered for self-assessment which wasn't appropriate or needed.

[mc2fool]

I am a little curious as to why both of you decided to call HMRC to register and didn't just fill in the online form ... although in AF62's case that might have required self assessment maybe....?

I called because that's what the website says - https://www.gov.uk/pay-class-2-national-insurance

HM Revenue and Customs (HMRC) will send you a payment request by the end of October - call the newly self-employed helpline if you do not get one.

But that's just, as it says, to get a payment request if you didn't get one. Actually registering as self employed is a mundane online form, although you do need an government gateway HMRC account so, as I say, it probably requires self assessment ... not sure, 'cos when I registered as self employed (income from ads on personal websites being the "business") I was already registered for self assessment.

But you got there in the end anyway, so congratulations!

[AF62]

I am a little curious as to why both of you decided to call HMRC to register and didn't just fill in the online form ... although in AF62's case that might have required self assessment maybe....?

I called because that's what the website says - https://www.gov.uk/pay-class-2-national-insurance

HM Revenue and Customs (HMRC) will send you a payment request by the end of October - call the newly self-employed helpline if you do not get one.

But that's just, as it says, to get a payment request if you didn't get one. Actually registering as self employed is a mundane online form, although you do need an government gateway HMRC account so, as I say, it probably requires self assessment ... not sure, 'cos when I registered as self employed (income from ads on personal websites being the "business") I was already registered for self assessment.

But you got there in the end anyway, so congratulations!

But the trouble is that if you go through that link to pay the class 2 as someone who doesn’t submit self-assessment then the first thing it asks for is your Class 2 National Insurance reference number, which you don’t have unless you have registered with the NI team to pay class 2.

[mc2fool]

I am a little curious as to why both of you decided to call HMRC to register and didn't just fill in the online form ... although in AF62's case that might have required self assessment maybe....?

I called because that's what the website says - https://www.gov.uk/pay-class-2-national-insurance

HM Revenue and Customs (HMRC) will send you a payment request by the end of October - call the newly self-employed helpline if you do not get one.

But that's just, as it says, to get a payment request if you didn't get one. Actually registering as self employed is a mundane online form, although you do need an government gateway HMRC account so, as I say, it probably requires self assessment ... not sure, 'cos when I registered as self employed (income from ads on personal websites being the "business") I was already registered for self assessment.

But you got there in the end anyway, so congratulations!

But the trouble is that if you go through that link to pay the class 2 as someone who doesn’t submit self-assessment then the first thing it asks for is your Class 2 National Insurance reference number, which you don’t have unless you have registered with the NI team to pay class 2.

Ok, well on double checking it does appear that both the online and paper forms to register for self employment (and hence get the required number) also register you for self assessment, which you didn't want so it looks like calling HMRC is the only way for that situation.

[bwel]

I think the advantage of being an Investor and registered simply as an 'Investor', is that rather than Investing having to be classed as a type of Employment or Sole Trading, is that under the Investment category, you don’t necessarily produce Income for Tax via SA. It’s mainly focused on Investment Portfolio Growth. This is specifically true if using the ISA and or SIPP as the wrapper/s for your investment activity.

Personally, I don’t draw out from my SIPP and if I did take any withdrawals from investment gains, then they would be sequenced from the ISA first and of course then not subject to Income Tax. That being said, I do submit Annual SA's but that’s more to do with any property income which is Taxed as Income. For others, that may not be relevant.

[Dod101]

I'm not employed but am a full time investor (within ISA and SIPP tax wrappers).

I would like to additionally pay Voluntary Class 2 NI and have read on the Gov Website that there are specific Self Employed Jobs that can pay Voluntary Class 2 NI.
www gov uk/voluntary-national-insurance-contributions

These jobs include:

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

I can't find any other information on the criteria of d) and given that it is specifically not as a business or creating Fee's or Commissions, then there is no Income on which to Declare as Self Employed on a Self Assessment Tax Submission.

Does anybody have any experience of Paying Voluntary Class 2 NI under these circumstances and can you advise on the process and any other specific criteria for d) above ?

Many thanks,

But you are clearly not self employed so why not just bite the bullet and pay Class 3 voluntary contributions. It is not a lot of monet considerin g the potential benefits.

Dod

[bwel]

This thread is about voluntarily paying NI within the rules. It’s one thing paying Voluntary NI at the prescribed Class 2 rate, it’s another thing to suggest paying Voluntary NI at the higher Class 3 rate. Personally I prefer give monies to the charities that I support.

[RockRabbit]

So, it would appear that paying voluntary Class 2 contributions will no longer be possible due to Autumn statement?

https://www.ftadviser.com/your-industry ... ibutions/#!

[mc2fool]

So, it would appear that paying voluntary Class 2 contributions will no longer be possible due to Autumn statement?

https://www.ftadviser.com/your-industry ... ibutions/#!

"Those with profits under £6,725 and others who pay Class 2 NICs voluntarily to get access to contributory benefits including the State Pension, will continue to be able to do so."

https://assets.publishing.service.gov.uk/media/655df827544aea000dfb3277/E02982473_Autumn_Statement_Nov_23_Accessible_v2.pdf, section 3.10, third bullet.

[bwel]

The rate has also been frozen at £3.45 for next year, in advance of the Self Employed NI reforms.

[swill453]

So, it would appear that paying voluntary Class 2 contributions will no longer be possible due to Autumn statement?

https://www.ftadviser.com/your-industry ... ibutions/#!

"Those with profits under £6,725 and others who pay Class 2 NICs voluntarily to get access to contributory benefits including the State Pension, will continue to be able to do so."

https://assets.publishing.service.gov.uk/media/655df827544aea000dfb3277/E02982473_Autumn_Statement_Nov_23_Accessible_v2.pdf, section 3.10, third bullet.

So it looks like those who have stopped working but have some gaps in their NI record can do it even easier and cheaper now.

Register self-employed as something like an "Internet Trader", make minimal turnover, no profit, pay no tax, and get the NI credit automatically without paying anything.

Scott.

[Lootman]

"Those with profits under £6,725 and others who pay Class 2 NICs voluntarily to get access to contributory benefits including the State Pension, will continue to be able to do so."

https://assets.publishing.service.gov.uk/media/655df827544aea000dfb3277/E02982473_Autumn_Statement_Nov_23_Accessible_v2.pdf, section 3.10, third bullet.

So it looks like those who have stopped working but have some gaps in their NI record can do it even easier and cheaper now.

Register self-employed as something like an "Internet Trader", make minimal turnover, no profit, pay no tax, and get the NI credit automatically without paying anything.

It is a racket. Part of the reason the state pension amounts are so derisory is that so many people get it, because it is so easy and cheap to just buy one even if you barely work.

Then again of course with pension credit it might not even matter if you never worked or paid NICs of any type.

I am curious who doesn't get a state pension?

[mc2fool]

"Those with profits under £6,725 and others who pay Class 2 NICs voluntarily to get access to contributory benefits including the State Pension, will continue to be able to do so."

https://assets.publishing.service.gov.uk/media/655df827544aea000dfb3277/E02982473_Autumn_Statement_Nov_23_Accessible_v2.pdf, section 3.10, third bullet.

So it looks like those who have stopped working but have some gaps in their NI record can do it even easier and cheaper now.

Register self-employed as something like an "Internet Trader", make minimal turnover, no profit, pay no tax, and get the NI credit automatically without paying anything.

Eh? No, it's not easier and cheaper now, and definitely not without paying anything. For that case there's no change from before. Well, ok, cheaper in real terms as the cost has been frozen:

"For those paying voluntarily, the government has decided to maintain the current rate of £3.45 per week for 2024-25." (Ibid, 4th bullet)

[bwel]

From 2019 News article
https://www.independent.co.uk/money/spe ... 3726.html#

The Department for Work and Pensions (DWP) data revealed that of the 1.1 million people who receive the new state pension, only 44 per cent or just under 500,000 pensioners receive the full amount of £168.60 a week or £8767.20 a year.

Under the old system, around 65 per cent of state pension recipients received the full, lower amount, potentially topped up with other benefits.