The Low Incomes Tax Reform Group (LITRG) has warned that self-employed low income workers will be unnecessarily burdened by HMRC’s proposal to move a key National Insurance (NI) contribution to the 31st January after the tax year, reports Harris & Co chartered accountants.
The body has responded to a consultation proposal voicing concern that the post-Christmas deadline is untimely and that such a move will handicap those used to paying by monthly instalments.
The NI contribution in question is known as ‘Class 2’ and is a regular weekly sum payable by self-employed earners to establish their entitlement to contributory benefits such as the state retirement pension. At present they are often collected by monthly direct debit. But in a recent consultation paper, HMRC have proposed moving the due date to the 31 January after the tax year, and collecting Class 2 contributions from the self-employed at the same time as their income tax self- assessment liabilities.
LITRG’s chairman, Anthony Thomas, said:
‘Whilst we acknowledge that collecting the Class 2 NIC at the same time as self-assessment liabilities may reduce administration time, it must be similarly acknowledged that it is incumbent upon HMRC to take into account the needs and challenges faced by those on low incomes.’
‘Collecting this extra amount on 31 January will increase the burden of debt on people on low incomes, and adversely affect their position under the new Universal Credit (as additional costs would be included in January each year for which no relief would be given). It is unlikely to affect the proportion of self-employed people who fail to notify HMRC that they have ceased employment, a large cause of the discrepancy between debt and collection, and as a result will do nothing to decrease the amount of Class 2 debt.’
‘It is also clear from informal discussions HMRC held with self-employed workers that the current NI system is poorly understood, particularly with regard to Class 2 NI and benefits to which it gives entitlement. The Small Earnings Exception (exemption from Class 2 for those on the lowest profit levels), too, is barely understood. LITRG recommend that improving how taxpayers are notified and informed of their rights and obligations would be a far better option than simply changing the system.’
‘Our recommendation would be to collect Class 2 NI monthly, as is the case now, or alternatively via the self assessment system in two instalments in January and July. This would keep payment in line with current payment dates. The ability to choose either option is clearly a benefit to those on low incomes as a monthly payment plan would be available for those who struggle to pay the larger instalments.’