Some state benefits need an up to date NI record. This might pose a problem for anyone who has deferred their self-assessment tax bill. How might this affect you?
NI record
If you’re self-employed or a partner in a business, you pay your Class 2 NI contributions as part of your self-assessment bill. As a result, if you defer payment your 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 you used the tax deferral scheme in the last year you may have owed the following on 31 January:
- part or all of your deferred 31 July 2020 payment on account
- the remaining tax (the “balancing payment”) for 2019/20; and
- your first payment on account for 2020/21.
Your Class 2 NI contributions are usually due as part of your balancing payment. Trouble arises if you weren’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 (see The next step).
Payment allocation
Because of the way HMRC allocates the payments against your tax bills, your deferred 31 July 2020 payment on account will be cleared first, as it’s the oldest due date. This is usually advantageous for you because it minimises the interest that HMRC charges for late paid tax. However, as a consequence there’s a risk that your Class 2 NI contributions (normally due on 31 January 2020) won’t be fully paid. Because your NI record needs to be fully up to date to qualify you for some state benefits you could miss out.
Tip. If you’re claiming or will claim state benefits and have deferred your tax payments, you should contact HMRC as soon as possible for help. It may be able to reallocate some of the payments you have made against any Class 2 NI that you owe to prevent you losing the right to benefits.
If you’re self-employed and have deferred payment of any of your 2019/20 self-assessment bill, it might have compromised your right to some state benefits. If you think this might affect you, contact HMRC ASAP.
The next step
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.