Agent Update: April 2021

HMRC have issued their Agent Update for April 2021. We have summarised the key content for you with links to our detailed guidance on the topics covered.

Some of the following items have been duplicated in this month's Employer Bulletin. Rather than reproduce these, we have linked to those updates where appropriate. See: Employer Bulletin: April 2021:

2019-20 Tax Returns Update

Voluntary Class 2 National Insurance for 2019-20 tax returns filed after 31 January 2021

Summary: impacted taxpayers

A taxpayer is impacted and should read this guidance if they have:

  • Paid voluntary Class 2 National Insurance contributions for 2019-20.
  • Filed their 2019-20 return after 31 January 2021.
  • Received the customer service message (see below).

Introduction

  • This document provides further guidance on the COVID-19 measure to not charge late filing penalties for late Self Assessment returns filed by 28 February 2021. Information has already been published on GOV.UK, including:
  • Impacts for customers who pay (or wish to pay) voluntary Class 2 National Insurance contributions were not included in the original guidance.
    • This document explains the issues for impacted customers and what HMRC is doing to resolve these.
    • It’s intended to be used to formulate responses to external queries regarding voluntary Class 2 National Insurance contributions, for those who filed after 31 January, but by 28 February 2021.

Background

  • On 25 January 2021, HMRC responded to agent representation and clear internal evidence that some customers would not be able to file their returns by 31 January 2021, by deciding not to charge late filing penalties for late returns submitted by 28 February 2021.
  • Taxpayers whose net profits are below the 2019-20 Small Profits Threshold (£6,365) are not liable to pay Class 2 National Insurance contributions but can pay voluntarily to protect their contributory benefit entitlement, including State Pension.
    • HMRC’s processing rules don’t allow for voluntary Class 2 National Insurance Contributions (NICs) to be included in returns filed after 31 January 2021 and this has not changed as part of the late filing penalty measure.
  • Some customers who did not file on time will have already paid voluntary Class 2 National Insurance Contributions or will pay when they file their return.
  • Returns received after 31 January 2021 will automatically be amended to remove the voluntary Class 2 amount meaning that HMRC systems will not recognise any Class 2 National Insurance Contributions as being due.
  • Payments the taxpayer made for voluntary Class 2 National Insurance Contributions will be either be:
    • Allocated to other Self Assessment liabilities (including earlier outstanding amounts).
    • Held in Self Assessment as a credit.
    • Put towards their Payment On Account 1 for 2020-21.
    • Refunded to the taxpayer.
  • There’s no issue if taxpayer profits reach the 2019 -20 Small Profits Threshold (£6,365 or above).
    • The taxpayer is liable to pay Class 2 National Insurance Contributions.
    • The return will reflect this and allocate payments made to the overall liabilities, including the Class 2 National Insurance Contributions due.

If the taxpayer has paid voluntary Class 2 National Insurance Contributions (either before or after 31 January 2021) and files their return after 31 January 2021

  • When the return is received, the voluntary Class 2 amount is automatically removed from the calculation and the following customer service message sent:
    • ‘I have corrected your Self Assessment because you did not pay the Class 2 National Insurance shown on your tax return by 31 January. It is now too late to pay voluntary Class 2 National Insurance through your tax return. You can find out how to pay voluntary National Insurance contributions.’
  • If the customer has not already made the payment and follows the advice in the message, they can make the payment directly to HMRC and it will be recorded as voluntary Class 2 National Insurance Contributions.
  • If the customer makes the payment before or at the same time as filing the return, they’ll still get the same customer service message, but because they’re filing after 31 January 2021, the message will incorrectly reflect the position by stating they did not pay.
  • HMRC have asked these customers to contact them so they can put things right.

HMRC accepting payments of voluntary Class 2 National Insurance contributions through Self Assessment without a return

  • HMRC still expect customers to pay on time or request a Time to Pay Arrangement once the return has been filed.
  • The payment due date for Self Assessment liabilities (including Class 2 National Insurance) is 31 January 2021, and this has not changed.
    • Payments of Class 2 National Insurance contributions made after that date are late and can adversely impact claims to contributory benefits.
  • When a payment is received before the return, HMRC has no way of knowing what it’s in relation to, until the return is submitted.

HMRC did not tell customers and agents to do something different to pay voluntary Class 2 National Insurance contributions when deferring the return

  • HMRC has delivered many measures to help individuals and businesses during the COVID-19 pandemic, all of which have been at a fast pace.
  • HMRC made the decision not to charge late filing penalties on returns filed by 28 February 2021 as soon as it had enough evidence to support the decision.
  • Because of the tight timescales, HMRC could not put alternative methods of collecting voluntary Class 2 National Insurance contributions in place.

Taxpayer impact

  • Approximately one million taxpayers did not file their return by 31 January 2021.
  • 71% of these are represented by an agent.
  • HMRC do not know how many of these taxpayers have profits below the Small Profits Threshold and have paid or will pay voluntary Class 2 National Insurance contributions.

How HMRC is telling customers about this

  • HMRC will publish a message on the Agent Forum and is exploring options to identify and make direct contact with affected customers.
  • The following text is a draft of the proposed message for Agents:
    • ‘HMRC is aware that some customers may have paid voluntary Class 2 National Insurance contributions (NICs) even though they have deferred filing their 2019-20 SA return until after 31 January 2021. Unfortunately, HMRC processing rules don’t allow for voluntary Class 2 NICs to be included in the SA calculation for returns filed after 31 January, so any Class 2 NICs payment will not be linked to the deferred return. If your client has paid voluntary Class 2 NICs via SA but filed their return after 31 January 2021, they will receive a customer service message when they file their 2019-20 return telling them it’s too late to pay voluntarily, and they could receive a refund of the voluntary Class 2 NICs payment. If this situation arises please contact HMRC on the National Insurance Helpline 0300 200 3500.’

How to know a taxpayer is impacted

  • A taxpayer is impacted if they’ve:
    • Paid voluntary Class 2 National Insurance contributions.
    • Filed their return after 31 January 2021.
    • Received the customer service message.
  • The customer service message will read: ‘I have corrected your Self Assessment because you did not pay the Class 2 National Insurance shown on your tax return by 31 January. It is now too late to pay voluntary Class 2 National Insurance through your tax return. You can find out how to pay this at GOV.UK’.
  • If the customer does not read the customer service message, they may not know they are impacted until they:
    • Receive a refund of the voluntary Class 2 National Insurance contributions they’ve paid.
    • Access their personal tax account and no Class 2 National Insurance contributions are shown for 2019-20.
    • Claim a contributory benefit, such as Employment Support Allowance or State Pension.
    • View their Self Assessment statement and there’s a balance of account amount showing as a credit.

When a taxpayer should contact HMRC

  • Customers should contact HMRC as soon as they’re aware they have been impacted.
  • Guidance is available for HMRC staff for when customers make contact.

How HMRC will put this right

  • If a taxpayer has received a refund, HMRC will give details of an alternative way to pay their Class 2 National Insurance Contributions.
  • If a taxpayer has not received a refund, HMRC will arrange for the money paid to be recorded correctly as voluntary Class 2 National Insurance Contributions.
  • HMRC will decide whether payments received after 31 January 2021 should be treated as paid on time, depending on the individual circumstances.

If customers take no action

  • If customers take no action, they may have gaps in their National Insurance record.
    • The effect of gaps varies from customer to customer and may not be felt until they come to claim State Pension.
  • HMRC encourage all taxpayers to use their personal tax account and the 'Check your State Pension service' to understand if there are gaps in their National Insurance record.
  • Find more information on GOV.UK.
  • Customers can contact HMRC if they think their record is wrong.

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