Class 2 Self-Employed

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  • #286840
    tjcole
    Participant

    Hi

    Hoping help is available.
    The A6 circular has created a bit of confusion regarding the Class 2 change from the 6th April 2024.
    These change apply to:

    New assessments of self-employed net income after that date,

    Existing self-employment cases which should be reassessed from 6 April 2024. Note: The changes don’t apply to
    any net income from self-employment before that date.

    We currently use the Tax and NI for the assessment period of the accounts or SE income that we are using eg 2023/24 accounts have the Tax and NI applied of that tax year. So always working backwards.

    Should we instead use this years Tax and no Class 2 regardless of the SE income period we are using, if we are applying it for a period after 6th April 2024?

    #286842
    Peter Barker
    Keymaster

    Hard to tell: it’s a bit of a mess. Reg 39(2)(a) required Class 2 contributions to be deducted at the rate applicable to the assessment period, so that is unlikely to be 2024/25 for current HB calculations.

    Reg 39(2)(a) is revoked by the Social Security (Class 2 National Insurance Contributions) (Consequential Amendments and Savings) Regulations 2024, which came into force on 6 April 2024. So far, so good: it looks as if Reg 39(2) no longer applies from 6/4/24.

    But the amendments are in Reg 8, which is in Part 3 of the amending regulations, and Reg 1(4) says “Parts 3 and 4 have effect for the tax year 2024-25 and subsequent tax years”, which you could interpret as meaning that Reg 39(2)(a) is only revoked for the purpose of assessment periods falling in the 24/25 tax year onwards.

    Otherwise, you’ll be using Class 4 NI rates for the assessment period, but not deducting Class 2, so it will be a hybrid of two years’ NIC rules.

    Consiodering most HB claimants’ S/E earnings are a roug estimate to start with, this is another demonstration of the principle: measure with a micrometer, mark with chalk, cut with an axe.

    #286843
    tjcole
    Participant

    I was worried that would be the case.
    Thank you so much for the quick reply and to ease my confused mind was right to be confused.
    It’s all part of the joy of Benefits

    #286847
    John Boxall
    Participant

    Given the current plans to move all ‘In Work’ claims to UC this year it seems rather pointless to change the regs at this late stage

    Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery. The blossom is blighted, the leaf is withered, the god of day goes down upon the dreary scene, and—and in short you are for ever floored.

    Wilkins Micawber, Ch12 David Copperfield

    #286850
    mthorne
    Participant

    Hi, we too are confused. With the added “fun” of if we reassess without NI from April 24 (IF that is what it means) we would be increasing the net income and therefore creating a small overpayment on each of them! As there is no mention of what to do with those overpayments, it may well be because, as Peter suggested, it only applies to AP’s falling in the current 24/25 tax year!

    #286857
    rob-boxall
    Participant

    Will UC be re-assessing all their working age self employed cases if they follow their own instructions? and if so will that mean many UCDS coming our way?

    #286920
    peterdelamothe
    Keymaster

    Rob the minimum income floor will kick in for many SE claimants who apply for UC. So (I am guessing here) not many qualify unless a new business.

    #286922
    John Boxall
    Participant

    Rob the minimum income floor will kick in for many SE claimants who apply for UC. So (I am guessing here) not many qualify unless a new business.

    That might have some interesting repercussions

    Wait till the MP’s start getting irate self employed claimants who have been moved to UC

    Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery. The blossom is blighted, the leaf is withered, the god of day goes down upon the dreary scene, and—and in short you are for ever floored.

    Wilkins Micawber, Ch12 David Copperfield

    #286926
    Pete Mc
    Participant

    The way I’ve always looked at it is that you are estimating someone’s future self-employed earnings so, yes, I will look at what they earned last year as a guide but, when estimating this years net earnings, I will use this years tax and NI thresholds. Not sure that there is any right or wrong though when it comes to estimating, it’s just a best guess and I’d argue my best guess should be based on the current tax and NI.

    #286931
    petedavies
    Participant

    Sadly, I think the hybrid theory suggested by Peter Barker is correct.

    Going back to 912/2012 “it is plain that to simply use the previous year’s earnings without any allowance for the downturn or upturn is the antithesis of estimating the earnings accurately”.

    Although this related to a change in income, the same logic must, surely, apply to any other significant change. The removal of the requirement to pay Class 2 is not a change in the rate so cannot be ignored for the purposes of Reg 34.

    We are required to estimate current year’s income based on what was earned during a historic period. If one of the assumptions on which that estimate is based is demonstrably and significantly wrong, my view is we must amend to correct, or at least mitigate, that aspect of the calculation.

    #286933
    wparsons
    Participant

    The way I’ve always looked at it is that you are estimating someone’s future self-employed earnings so, yes, I will look at what they earned last year as a guide but, when estimating this years net earnings, I will use this years tax and NI thresholds. Not sure that there is any right or wrong though when it comes to estimating, it’s just a best guess and I’d argue my best guess should be based on the current tax and NI.

    But reg 39 clearly says that the deductions for Tax and NI should be made at the rate applicable to the assessment period so if you are using previous tax years SE figures then you apply the Tax and NI deductions based on that tax years rates and thresholds.

    In my opinion revoking reg 39(2)(a) seems to be unnecessary as Class 2 NICs still exist they are just treated as having been paid rather than actually payable so reg 39(2)(a) could remain in place and still have the effect of not making a deduction for assessment periods after 06.04.2024

    “the amount of Class 2 contributions payable under section 11(2) or, as the case may be, 11(8) of the Act at the rate applicable to the assessment period”

    This is straight forward if your assessment period of SE earnings was for any period before 06.04.2024 then you deduct class 2 NICs as they still would be payable for the assessment period.

    if you leave reg 39(2)(a) in place and your assessment period is after 06.04.2024 (estimate for a new start up for instance) then the “amount of Class 2 contributions payable under the act” will now be £0.00 as it is now treated as paid rather than actually payable.

    Unless I’m missing something

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