Class 2 NI: problems with deferred tax payments

NI record

A self-employed person or a partner in a business pays Class 2 NI contributions as part of their self-assessment bill. As a result, if they defer payment their NI record may not be up to date. Usually, this isn’t a significant problem but this year it is because many individuals have taken advantage of HMRC’s coronavirus self-assessment tax deferral scheme.

Deferred tax bills

If an individual used the tax deferral scheme in the last year they may have owed the following on 31 January:

• part or all of the deferred 31 July 2020 payment on account
• the remaining tax (the “balancing payment”) for 2019/20; and
• the first payment on account for 2020/21.

Class 2 NI contributions are usually due as part of the balancing payment. Trouble arises where someone wasn't able to pay all three amounts on time and asked HMRC to set up a time to pay arrangement, whether through its automatic online application process or by contacting it directly.

Payment allocation

Because of the way HMRC allocates the payments against tax bills, the deferred 31 July 2020 payment on account will be cleared first, as it’s the oldest due date. This is usually advantageous because it minimises the interest that HMRC charges for late paid tax. However, as a consequence there’s a risk that theClass 2 NI contributions (normally due on 31 January 2020) won’t be fully paid. Because the NI record needs to be fully up to date to qualify for some state benefits the individual could miss out.

Anyone claiming, or will claim, state benefits that has deferred tax payments should contact HMRC as soon as possible for help. It may be able to reallocate some of the payments made against any Class 2 NI owed to prevent losing the right to benefits.