HMRC accused of wrongly correcting self-employment tax returns

Are you self-employed and confused about National Insurance contributions? If the answer is yes, then you might take some comfort from the fact that you are most certainly not alone. Accountants know that there is already widespread confusion around the subject of self-employment and National Insurance contributions, and this has certainly not been helped by the government’s latest attempts to further reform the arena and make self-employed individuals pay additional contributions.

Unfortunately, HM Revenues & Customs has not really been helping to relieve this confusion; in fact, some accountants would argue that it has in fact been compounding the problem. According to the latest reports, there is some evidence that HMRC is actually creating ‘errors’ within the tax returns of self-employed individuals who then subsequently don’t pay enough National Insurance contributions.

So what ‘errors’ are these? Well, the errors relate to the changes to the National Insurance system announced by the previous coalition government. As a result of these changes from April, 2015, self-assessment tax returns have been used as a means of declaring Class 2 NICs: prior to April, 2015, NICs were paid directly to HMRC via direct debit. Under the new system the self-employed individuals and partners within partnerships pay £2.80 per week Class 2 NICs: these payments then count towards the state pension and maternity or paternity leave payments.

Unfortunately, many self-employed taxpayers have stated that when they submitted their tax returns either online and via paper-based methods correctly recorded their Class 2 NICs, HMRC then corrected these returns, removing the Class 2 NIC liability because the ‘self-assessment system does not expect it to be paid’.

Initially, HMRC denied the issue, however, frontline staff at HMRC acknowledged the oversight to many accountants, blaming it on a “technical fault” with HMRC systems and stating it had been “reported internally”. Now HM Revenues & Customs has admitted the problem, but claims these corrections had affected only a “handful of people”.

Why is this issue important for self-employed workers? Well, if you are a self-employed individual or a partner within a partnership, it is important to look out for any ‘correction’ made by HMRC and not to simply assume that the removal of NICs from your return is correct. It’s important because under the new rules all taxpayers require 35 years of consistent NICs in order to be entitled to the full state pension. So any break in these contributions could have long-term ramifications.

There are further changes planned for NICs further down the line. Class 2 NICs are due to be abolished from April 2018, with all future self-employed contributory benefit entitlement to be accessed via Class 4 NICs. If you are a self-employed individual with profits below the Small Profits Limit from April, 2018, you will be able to access Contributory Employment and Support Allowance via voluntary Class 3 NICs that are currently paid at £14.10 per week. During the transition period, provision will be offered to self-employed individuals with low profits.

If you are confused by the changes to self-employment National Insurance contributions, or require help with your tax and small business needs, call Steven Glicher accountants on 0161 485 8007 or email

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