Voluntary National Insurance (Class 2) - for Investors

[bwel]

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,

[mc2fool]

It comes up occasionally, most recently in this thread, but as I say there, you'd think it'd be an obvious one for folks on these boards but I don't recall anyone saying they'd taken that route. Most set themselves up as self employed doing a teeny bit of ebay trading, or gardening for the neighbours, or babysitting the grandkids, or some other similar just-to-qualify "trade".

[Mulberry]

Here is what I said on the subject earlier this year. I had already been paying Class 2 contributions in relation to a self-employed business but needed another couple of years to qualify for a full state pension. Only 4 months of contributions to go now!

"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

[Adamski]

Its referring to paying class 3 voluntary contributions. You only pay class 2 and 4 as self employed earning profits over the qualifying limit.

[mc2fool]

Mulberry's original post he copies above was in a thread appropriately titled Class 2 NI contributions, again... which can be found at: viewtopic.php?p=382505#p382505

As I say, the topic of class 2 for investors comes up every now and again but AFAIAA nobody has reported doing that.

However, that and class 2 NI in general comes up fairly often on the Pensions - Practical Problems board, viewforum.php?f=17, and you may want to take a search through that. Or alternatively just start a thread there asking what self-employed "trade" folks have declared themselves as doing in order to be able to pay voluntary class 2 NICs.

[monabri]

Class 2 if your profits are £6,515 or more a year
Class 4 if your profits are £9,569 or more a year

Class 2 = £3.05 per week
Class 4 = 9% of profits

As explained here:

https://www.gov.uk/self-employed-nation ... ance-rates

Class 3 = £15.40 per week

https://www.gov.uk/voluntary-national-i ... ions/rates

So, it should be obvious from the direct debit as to which class is being paid for.

It will be of interest if Mulberry is paying £3.05 per week and whether the years are being recorded correctly on the government gateway account.

[mc2fool]

Its referring to paying class 3 voluntary contributions.

If by "its" you are referring to the section from http://www.gov.uk/voluntary-national-insurance-contributions that the OP copied into their post, no, it refers to voluntary class 2 NICs. If that page is not clear then see https://www.gov.uk/hmrc-internal-manuals/national-insurance-manual/nim74000.

I will leave it as an exercise for the readers to decode and determine what hoops have to be jumped through to qualify under the relevant tier of activity in relation to those undertaking investment related activities:

"a person who does more than dabble and so passes the test for gainful (self-) employment in section 2(1)(b) of the SSCBA 1992 such that they are a self-employed earner for the purposes of Class 2 NICs, but 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 activities. Such individuals are not required to pay Class 2 or Class 4 NICs under sections 11(2) and 15 of the SSCBA 1992 (although they may be taxable on their gains under Self Assessment). Under section 11(6) of the SSCBA 1992, these individuals will be entitled to pay Class 2 NICs voluntarily."
https://www.gov.uk/hmrc-internal-manuals/national-insurance-manual/nim74250

You only pay class 2 and 4 as self employed earning profits over the qualifying limit.

You only have to pay class 2 and 4 as self employed earning profits over the qualifying limits but you may voluntarily do so even if you are earning profits of less than the limits -- or even making a loss.

[Mulberry]

I am paying Class 2 contributions of £3.05 by monthly direct debit. The two years for which I have paid contributions on this basis have been recorded in my NI record.

Mulberry

[Eboli]

Surely the simply point is that the nature of the activity under which you claim to be eligible for Class 2 has to be more than simply dabbling in investments.

For greater clarity see:

https://www.gov.uk/hmrc-internal-manual ... l/nim74250

And for this purpose a self employed earner is then defined as:

“self-employed earner” means a person who is gainfully employed in Great Britain otherwise than in employed earner’s employment (whether or not he is also employed in such employment).

I doubt that many who sell and buy investments visiting here are so 'gainfully employed'.

Eb.

[bwel]

I called HMRC today.
The person I spoke came across as quite unfriendly, short and pedantic with her questions, so I began to expect a tough call to get registered for the category of Voluntary National Insurance (Class 2) - for Investors. To be clear, I've spoken to many other HRMRC lines and normally find them very friendly and helpful, I think i was just unlucky today. That being said, it turned out to be an an easy and successful call.

Firstly, they clarified if I had spoken to the Future Pensions Service first, to confirm my current qualifying years position. To which i confirmed I had.

I decided not confirm that I already have sufficiently qualified years for the full state pension and I'm only looking at 'potentially' paying these additional Voluntary Class 2 payments, based on the risk that the Number of Qualifying Years may be increased in the future, in the same way that the Pension Age has been increased (65 to 67) and Early Retirement access age is also being increased at the moment (55-57). Incidentally I have also been advised on another call, that there is nothing at the moment under review to increase State Pension qualifying years, but they advised it is quite possible, but they would give notice such that people had time to make Voluntary Class '3' contributions !!!

They then registered me as Self Employed from the date I confirmed. The 'Nature' of Self Employment was clarified and I confirmed:- Investing and they registered me as 'Investor'.
- Date of Commencement ##/##/####
- Nature of Self Employment - Investor

There were no clarifications of: the type of investing, level (£) of investments, Qty of separate investments, Volume of trades per period, investment vehicles or anything else.
Whilst I was prepared for questions to assess if this was Dabbling, there were no questions or clarifications from HMRC. To be frank, I could quite possibly have had a High Street Bank Cash ISA and would have completed the registration....

To clarify, I am genuinely investing and have for many years and am financially independent from it. I would not be on this forum if not a serious investor.

I think the key difference for many registering as Self Employment under this 'Investor' Self Employment category is the criteria of "but not as a business and without getting a fee or commission", whereas other Self Employed people need to demonstrate that they are Gainfully Employed with the objective of making profits rather than dabbling by selling the junk in your garage.

Clearly Investing is with the objecting of making gains, but it does not need to be Trading eg day or swing trading and could be very long term holds aka Warren Buffet style.

[mc2fool]

Well, well done! You're now the TLF guinea pig for this.

I decided not confirm that I already have sufficiently qualified years for the full state pension and I'm only looking at 'potentially' paying these additional Voluntary Class 2 payments, based on the risk that the Number of Qualifying Years may be increased in the future...

A possibility, of course, although with the state pension system having undergone a total remake just 5 years ago I'd suspect that it'd be quite a long while before they tinker with it again. No guarantees of course.

I take it you are aware that, provided you were eligible to class 2 at the time, you can pay them as voluntary NICs up to 6 years in arrears? (Although the price is only frozen for the previous year.) So you could, having registered now, not pay them until and unless they do increase the number of qualifying years, and then up to pay 6 years in one go. Of course, that takes the gamble that they won't increase them by more than 6...

They then registered me as Self Employed from the date I confirmed. The 'Nature' of Self Employment was clarified and I confirmed:- Investing and they registered me as 'Investor'.
- Date of Commencement ##/##/####
- Nature of Self Employment - Investor

Was that date in the current tax year? If not be aware that they will now almost certainly require you to file/refile for every year back to the commencement date.

BTW, have you looked into the/any income tax and/or self assessment implications? There's obviously something different to being "normally" self employed, as the page on voluntary NICs says that people with those "specific jobs" don't pay class 2 through self assessment, so I'm wondering what else may be different. Also, as you are financially independent from investing could you fall into the third tier of the previously linked to HMRC manual and an "income tax charge" to arise? Whatever that may mean...

(And BTW, you are far from alone: there's quite a few folks on these boards that live or have lived off of their investing.)

I think the key difference for many registering as Self Employment under this 'Investor' Self Employment category is the criteria of "but not as a business and without getting a fee or commission", whereas other Self Employed people need to demonstrate that they are Gainfully Employed with the objective of making profits rather than dabbling by selling the junk in your garage.

Well I'm not sure that the latter is right in reality, or what Gainfully Employed really means, as folks here have registered as self employed for the purposes of making voluntary class 2 NICs doing a variety of "trades" that could definitely be described as "dabbling" and raise only a nominal sum! E.g. ebay trading, which is kinda the modern equivalent of selling the junk in your garage.

The point is that you get the first £1000 of self-employed profits tax free with no need to declare but the self assessment allows you to optionally declare it in order to pay voluntary class 2 NICs. Is making a self-employed profit of £1pa "Gainfully Employed"? Well the tax system thinks so....

[genou]

BTW, have you looked into the/any income tax and/or self assessment implications?

I'd be stunned if this treatment sticks. HMRC are very resistant to private individuals being treated as traders, because private traders mostly make losses that they then want to set against other income. If the status holds, nothing the OP does is subject to CGT, all the profits/losses are under the IT regime.

[Lootman]

I called HMRC today.The person I spoke came across as quite unfriendly, short and pedantic

One rule I stick to is never to ring them. There is always a risk you will blurt something out that might later count against you. Rather let them talk and then respond in writing after reflection.

BTW, have you looked into the/any income tax and/or self assessment implications?

I'd be stunned if this treatment sticks. HMRC are very resistant to private individuals being treated as traders, because private traders mostly make losses that they then want to set against other income.

A tax policy predicated on working for HMRC only if you make a loss does not strike me as something the courts would support.

[genou]

A tax policy predicated on working for HMRC only if you make a loss does not strike me as something the courts would support.

I think you've juggled your words there. But on the underlying issue have fun ( random link from Google ); HMRC don't always win, but they do resist private trading , which is what I was saying:

https://library.croneri.co.uk/cch_uk/btr/200-850

But I still stress that if the OP gets trader status , it's IT all the way.

[Lootman]

A tax policy predicated on working for HMRC only if you make a loss does not strike me as something the courts would support.

I think you've juggled your words there. But on the underlying issue have fun ( random link from Google ); HMRC don't always win, but they do resist private trading , which is what I was saying:

https://library.croneri.co.uk/cch_uk/btr/200-850

But I still stress that if the OP gets trader status , it's IT all the way.

Your link crashed my laptop but in any event I think that anyone trying this tactic has to take into account not just the cases that went to court but also the very much larger number of cases where nothing happened. Tax issues are a numbers game.

[genou]

A tax policy predicated on working for HMRC only if you make a loss does not strike me as something the courts would support.

I think you've juggled your words there. But on the underlying issue have fun ( random link from Google ); HMRC don't always win, but they do resist private trading , which is what I was saying:

https://library.croneri.co.uk/cch_uk/btr/200-850

But I still stress that if the OP gets trader status , it's IT all the way.

Your link crashed my laptop but in any event I think that anyone trying this tactic has to take into account not just the cases that went to court but also the very much larger number of cases where nothing happened. Tax issues are a numbers game.

I'm sorry about that crash ( fine here ). It's a numbers game if you don't push HMRC's buttons ( as discussed elsewhere, I've been gone a loong time, but this was a button in my day ). Traders who make profits want CGT treatment. cos less tax. Traders who make losses want IT treatment, cos offsettable losses. Hence HMRC's historic attitude. The OP needs to be careful what they wish for if they plan to make profits.

[Eboli]

NIC does not appear to have the same boundaries as IT/CGT

For the IT/CGT boundary it is clear that if you fall on the IT side of the line then although losses are allowable, profits are taxable to IT, not something an investor wanting to make long-term gain would desire. That's one of the reasons why most tax cases in this area have concerned whether gambling can ever be trading because it is in that area that trading treatment would (normally) be advantageous to the taxpayer.

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. So it does seem possible to fall within the boundary for Class 2 NICs without falling on the trading side of the line for the IT/CGT boundary.

All very interesting.

Eb.

[mc2fool]

A tax policy predicated on working for HMRC only if you make a loss does not strike me as something the courts would support.

I think you've juggled your words there. But on the underlying issue have fun ( random link from Google ); HMRC don't always win, but they do resist private trading , which is what I was saying:

https://library.croneri.co.uk/cch_uk/btr/200-850

But I still stress that if the OP gets trader status , it's IT all the way.

croneri is one of those subscription services that, like the FT, puts access behind a paywall, except when you've come via a search engine. Folks can see the above linked-to article in full for free by following the search result from: https://www.google.com/search?q=200-850+Trading+in+shares

[bwel]

Fortunately the rules around payment of Voluntary Class 2 NIC under the category of "Investor" are not in any way based on the parallel category of a "Trading" Activity to create short term Profit or Loss and specifically are separate to the "Trading" Category where you may need to demonstrate the purposeful pursuit of Gainful Income to differentiate from some form of dabbling eg Selling Junk from your Garage.

[mc2fool]

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.