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Menacing ‘red’ demands issued by HMRC

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Have you received an ‘urgent’ tax demand from HM Revenue & Customs (HMRC) or an amended tax calculation for 2015/2016?

If so, don’t panic.  After looking into this further we can confirm this is another system blunder from HMRC.

Class 2 National Insurance Contributions (NIC), which used to be paid by way of monthly direct debit or quarterly demand, were transferred into the Self-Assessment tax system (SA) from 6 April 2015 onwards.  Any Class 2 NIC due is now payable along with SA tax at the end of January following the tax year in question.

For the 2015/2016 tax year a taxpayer was required to pay Class 2 NIC if their taxable business profits exceeded £5,965.  If their profits were under £5,965, then it may have been beneficial to pay the contributions voluntarily to maintain an entitlement to certain state benefits, including the State Pension.

The issue that we are now facing is due to the difference between required and voluntarily.

Anybody who was required to make Class 2 contributions, but has not yet paid the tax that they were expecting to pay by 31 January 2017, should pay any demand that they have received as soon as possible to avoid further interest and penalties accruing.

Anybody who opted to voluntarily make Class 2 contributions, but has not yet paid their 31 January 2017 tax, or paid the bill late, may find that they have already received an amended tax calculation from HMRC and a tax statement showing a credit or a balance due.

So why have these demands arisen?

The problem is that HMRC cannot legally chase a debt for a voluntary payment.  So, as soon as 31 January 2017 passed any Class 2 NICs which were outstanding were removed from the SA tax system, hence the issuing of the amended tax calculations, and passed back over into the NIC system.

However, the National Insurance Contributions Office will also not chase for any outstanding voluntary Class 2 contributions.  So it is important that anybody that has received an amended tax calculation for 2015/2016 which shows that Class 2 NIC has been transferred takes action to ensure that their NIC record is up to date.

If after 31 January 2017 you made a payment to HMRC to cover the Income Tax and Class 2 NIC that was due then it is likely that your HMRC account will show a credit, which will effectively be the Class 2 NIC liability that HMRC have passed back to NICO.  In this instance it may be possible to get the credit transferred between the two separate accounts or it may be necessary to get the credit refunded and a new payment be made for the Class 2 NIC liability.

If you have not yet made a payment to HMRC then you will effectively be faced with paying two separate bills, one to HMRC for your SA tax and one to NICO for your Class 2 NIC liability.

Our team of tax specialists are reviewing all cases independently to ensure that individuals affected are advised of what action they need to take, but if you have any queries please call a member of our tax team on 01228 711888.

Posted: February 22nd, 2017

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