Beware HMRC 'correcting' your tax return

21 February 2017

George Bull

Regular readers will be aware that we are supportive of actions taken to simplify the administrative burden for taxpayers. However, we have urged caution over the implementation of such steps without sufficient testing.

One such case relates to the payment of Class 2 National Insurance Contributions (NICs), the £2.80 per week liability applicable to self-employed individuals and partners in partnerships which provides access to contributory based state benefits.

Until the end of the 2014/15 tax year, Class 2 NICs were payable in arrears, usually by direct debit. Since April 2015, the collection of this small liability has been transferred to the annual self-assessment tax return.

However, now that collection has been moved onto the tax return, the self-assessment system appears not to be able to correctly identify all those who are liable for Class 2 NICs. The issue seems to have arisen because the information held by HMRC in the self-assessment system is separate to that held in the National Insurance and PAYE system.

As a result, many taxpayers are now finding that despite submitting tax returns which correctly report their Class 2 NIC liability, HMRC are actively ‘correcting’ such returns thereby removing the Class 2 NIC liability because the self-assessment system does not expect it to be paid.

We urge taxpayers to check any ‘corrected’ calculations carefully as they may not actually be correct. The law requires the taxpayer to advise HMRC if their revision to the tax return is incorrect within 30 days otherwise it is considered that the taxpayer agrees the change.

The solution, HMRC advises, is for each taxpayer affected to contact HMRC and re-register for self-employment (and thereby Class 2 NIC). One may ask whether taxpayer intervention is really necessary given that, having completed their tax return in full, HMRC has sufficient information to enable it to conclude whether a Class 2 NIC liability is due.

With so many ‘corrected’ tax calculations having been issued by HMRC, this has caused a big headache for such a small liability. With further change due in April 2018 when Class 2 NICs are abolished, one has to question whether moving the Class 2 NIC liability onto the tax return for only three years can really be considered simplification?

For more information please get in touch with George Bull, or your usual RSM contact.